Euro zone finance ministers meet to seek accord on single resolution mechanism

Euro zone finance ministers met in Brussels yesterday afternoon for the first day of two-day talks aimed at breaking the deadlock over Europe's plans for a single resolution mechanism – a single, centralised fund to wind up troubled banks. With agreement in December on the structure of the €55 billion rescue fund, it has fallen to the Greek presidency of the council of the EU to seek agreement with the European Parliament on the details of the fund. Meetings have been ongoing at official level for months.

Mutualisation level
On March 5th, the parliament published its latest "wish-list" for the mechanism – the rate at which the "national compartments" are fused into a shared fund needs to be accelerated it said, to 50 per cent of mutualisation within the first year, and the rest over the subsequent two years.

It is also demanding member states should not have a role in deciding on bank resolution – “resolution actions concerning a specific bank should be decided only at the executive board level to avoid political power games”, the European Parliament said.

In reality, the ensuing weeks will be a typical EU-exercise in negotiation and compromise. MEPs, mindful of upcoming elections and keen to flex the co-decision powers they received under the Lisbon Treaty, are unlikely to gain significant concessions from the council (ie member states).

Nonetheless, member states are under pressure to reach some compromise, not only with the parliament, but also between themselves. There are signs Germany may be becoming increasingly isolated in its demands, with its allies, Finland and the Netherlands, prepared to cede more ground in terms of mutualisation.

As finance ministers from all 28 member states convene today, they will be mindful of the European Central Bank’s announcement this morning on its asset-quality reviews.

The ECB has been maintaining pressure on the EU to have a system in place to deal with any shortfalls its assessments might reveal – even though a strict hierarchy of creditors, and the use of funds raised in the private markets, is envisaged before the single resolution fund is tapped.

Ecofin meeting
There was talk yesterday evening of a further Ecofin meeting next Tuesday, while April 18th is the final date by which the European Parliament can vote on the text .

While there is still some distance to travel before agreement can be reached on this highly technical legislation, there is still widespread consensus that a deal must be achieved before the European elections in May if the credibility of the banking union project is to be maintained.