Finance ministers to discuss stress-tests for banks
Supervision reforms also on the agenda of tomorrow’s meeting; Van Rompuy taskforce to hold talks today.
The EU’s finance ministers will meet tomorrow (13 July) with the aim of agreeing details of a stress-testing exercise of the European banking sector, and how the EU should reform its supervisory architecture for the financial markets.
The meeting will today be preceded by the third session of the EU’s ministerial taskforce on reforming economic governance. The taskforce is chaired by Herman Van Rompuy, the president of the European Council, and has a representative from each member state, in almost all cases its finance minister. The meeting will discuss sanctions that should be applied against member states that have excessively high deficits and levels of public debt. Governments want the taskforce to agree a set of governance reforms by October.
Click Here: NRL Telstra Premiership
The taskforce will be followed by a meeting of the eurozone’s finance ministers. This meeting, which will start at 5pm, will focus on governments’ progress in setting up a €440 billion ‘European financial stability facility’ that would assist eurozone countries that get into financial difficulties.
Governments agreed in May to set up the facility to reassure the markets that no eurozone country would default on its debt. The facility would raise money on the markets by issuing bonds.
The Slovak government, which took office on 8 July, has withdrawn Slovakia’s support for the facility, and refused to provide its share of the start-up capital.
Slovakia’s opposition has delayed efforts to make the facility operational, and ministers are expected to put pressure on the country to come back into line. José Manuel Barroso, the president of the European Commission, is expected to discuss the issue with Iveta Radičová, Slovakia’s prime minister, tomorrow.
Eurozone ministers will also be briefed by Klaus Regling, the facility’s chief executive, on his progress in getting the facility a triple-A credit rating, so that it can raise money at the lowest possible interest rates.
Stress tests
The meeting of finance ministers from all 27 member states will begin tomorrow morning. Ministers are under pressure from the markets to agree to full and complete disclosure of the methodology and results of a stress-test exercise being carried out by the Committee of European Banking Supervisors (CEBS).
The exercise covers 91 banks, and results will be published on 23 June. It will test whether banks could withstand a sudden negative shock to the financial markets, including one caused by a sovereign default.
Governments agreed last month that the published results should include information on how individual banks fared in the tests, but have yet to clarify exactly how much data will be released. A number of member states, notably Germany, face legal obstacles to releasing information without banks’ consent. A statement from CEBS, published on 7 July, has worried investors that the economic scenario used in the tests may not be sufficiently severe.
Ministers will also discuss what financial ‘backstop mechanisms’ should be put in place to support any financial institutions that are found to be undercapitalised.
Ministers will be briefed on the stress tests by Thomas Wieser, the president of the EU’s economic and financial committee, which brings together high-level civil servants from national finance ministries.
Supervision reforms
Ministers are expected to agree concessions that Belgium, which holds the rotating presidency of the EU’s Council of Ministers, can offer the European Parliament in an attempt to secure a deal on reforming the EU’s system of financial supervision.
The reforms include the creation of three authorities with binding powers over the EU’s banking, insurance and securities sectors, as well as the creation of a European Systemic Risk Board (ESRB) to monitor threats to the EU’s economy as a whole.
Both the Council and the Parliament are aiming to secure a deal on the legislation by September, so that the three authorities and ESRB can start work on 1 January 2011.
The Parliament last week voted on a series of amendments to the European Commission’s original proposals, but refrained from finalising its vote to allow more time for negotiations with the Council on a first reading deal.
According to draft texts seen by European Voice, the Council’s concessions will include allowing the three authorities to give direct orders to financial institutions, in cases where a national financial regulator fails to properly apply an EU law or technical standard.
Finance ministers will flesh out an agreement reached by governments last month to submit their annual draft budgetary plans for EU-level review in the first half of the year. Governments believe that the review process, to be called the ‘European semester’, a reference to the six months allowed to submit the plans, is an important step to identify member states pursuing irresponsible fiscal policies and to recommend changes to spending or tax plans.
Ministers may also hold a discussion in the margins of the meeting on progress in setting up a financial-transactions tax, after France and Germany called last week for a “European solution” to be developed on the issue.
Ministers will also set deadlines for Bulgaria, Denmark, Cyprus and Finland to bring their deficits within the limit of 3% of gross domestic product allowed under EU law, and agree details for Estonia’s entry into the eurozone on 1 January 2011.