adminagree on assigning losses at failing banks as part of proposed rules on bank resolution and recovery. They will regroup tomorrow, before EU leaders gather the next day for a summit in Brussels.
“We shouldn’t be lulled by the current calm in the markets,” German Finance Minister Wolfgang Schaeuble said in a statement after the meeting. “Rather we should quickly ensure that we’re prepared for every eventuality.”
European leaders’ failure to forge ahead with a so-called banking union that was agreed on almost a year ago has underscored the frustrations in overcoming a crisis now in its fourth year. With global markets jolted last week on concern over the possible tapering of US stimulus, euro-area leaders who have relied on market calm over the past year may have less leeway.
A potential snag also emerged in Greece, where one of Antonis Samaras’s coalition partners abandoned the government following a dispute over the closing of state broadcaster ERT, narrowing the premier’s majority in parliament to three seats.
The single currency extended last week’s 2 percent decline against the US dollar, weakening 0,2 percent to US$1,31 at 8:30am in Brussels. The yield on Spanish 10-year bonds, another yardstick of euro-crisis market turmoil, jumped above 5 percent from the first time since April 2. Ten-year Italian yields rose 10 basis points to 4,72 percent.
The banking-union talks collapsed last Saturday after 19 hours of negotiations on the question of which creditors face write-downs when banks fail, compounded by differences between euro-area countries and EU states outside the euro.
“There are still core issues outstanding,” Irish Finance Minister Michael Noonan told reporters as he left the meeting. “We have another meeting next week, and there’s no guarantee it’ll reach a conclusion.”
The banking union’s primary objective was to allow bailout funds to recapitalise banks directly rather than burdening states with debt, thus ending the cycle of contagion between banks and sovereign debt and offering a way out of the crisis.
French Finance Minister Pierre Moscovici said he had “no doubt” that ministers will reach an agreement this week, while Germany’s Schaeuble said a final deal must be constructed in a way that won’t burden tax payers.
“The banking-union concept is a credibility test,” Irish Prime Minister Enda Kenny said at a European People’s Party meeting in Vienna on June 20. Not going forward “would be a poor signal of both credibility and trust” of the EU, he said.
In Greece, the government was shaken as the Democratic Left, the smaller of Samaras’s two coalition partners, withdrew its ministers. The party had protested the prime minister’s decision to shut the public broadcaster, suspend 2 600 jobs there and create a new, smaller company.
The withdrawal leaves Samaras’s New Democracy party and the Socialist Pasok to run the government. Together, they hold 153 seats in the 300-member parliament, compared with the 167 they had when joined with the Democratic Left.
As Greece approaches its next aid disbursement from international lenders in July, the EU has urged the indebted nation to press ahead with its economic overhaul. The upheaval revived concern that Greece will slide back into the political turmoil that halted aid payments and raised the spectre of the nation exiting the 17-member euro.
“It would be very important to stabilise the political situation in Greece now, immediately, and really concentrate all energy on implementation of the programme,” EU Economic and Monetary Affairs Commissioner Olli Rehn said on June 21 in Luxembourg. “I appeal to the sense of political responsibility of all political leaders and the Greek people to ensure stability and concentrate on policy rather than politics.”
The European ructions come after markets around the world tumbled last week in response to Fed chairman Ben S. Bernanke’s announcement that the central bank may start reducing bond purchases that have fuelled gains in markets globally.
The possible withdrawal of monetary support places the burden of resolving the euro crisis back onto the shoulders of European governments, according to Nicholas Spiro, managing director of Spiro Sovereign Strategy in London.
“The ‘tapering terror’ that is convulsing financial markets will throw the limited progress achieved in putting the governance of the eurozone on a firmer footing into sharper relief,” Spiro said in an e-mailed statement yesterday. “Eurozone leaders can no longer count on market complacency to help them muddle their way through the crisis.” — Bloomberg.
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