I didn’t think they could manage it given the timeframes, but against my predictions Europe’s financial leaders have managed to pull together a deal for the beginnings of a banking union with an agreement to let the ECB become the supervisory authority for major European banks.
The statement from the European council can be found here, and a good wrap is provided by OpenEurope:
EU finance ministers last night reached a technical agreement on creating a new single financial supervisor at the ECB. The ECB will supervise banks with assets worth more than €30bn or 20% of their state’s GDP – thought to be around 200 out of 6,000 eurozone banks. National supervisors will run the day to day supervision of the other banks, although the ECB can intervene if it sees fit. The aim is to have the new supervisor set up by March 2013, although German Finance Minister Wolfgang Schäuble made it clear that plans to use the ESM, the eurozone bailout fund, to recapitalise banks directly could not be in place before 2014.
The UK, Sweden and the Czech Republic rejected joining the single supervisor and secured safeguards to ensure they are not automatically outvoted at the European Banking Authority (EBA). Regulations in the EBA will now need approval by a simple majority of countries in the single supervisor and those not in, as well as a general qualified majority of all EU members – known as the double majority principle. UK Chancellor George Osborne said that the UK had secured a “very good deal” – similar to that proposed by Open Europe – and that the “single market was protected”.
The plan will now need political approval from EU leaders at the EU summit today and tomorrow, while it will also need to pass through the European Parliament and some domestic parliaments.
The new function will be called the “single supervisory mechanism(SSM), add it to your EU acronym cache, and is supposed to begin by March 2013, but as you read above there is already statements from the German camp that no direct access to the ESM by banks will be considered before 2014; after the election obviously. To date I haven’t seen any additional information on the “legacy” issue so it would appear that none of this helps the countries that are already suffering from banking issues.
This decision is the first step with the ultimate aim to allow troubled banks to have access to a supra-European resolution fund along with cross-boarder deposit insurance but all of this is yet to be sorted through. Yesterday’s agreement is a positive first step, but, as I said back in September , it’s the deposit insurance that I consider the key component and it’s still a long way off. Yesterday’s agreement is the beginnings of a new framework but there is a long political and legal road to travel before I would consider this deal really done. As we’ve seen over the last few years everyone in Europe can agree on most things right up until the subject of “debt mutualisation” is raised. I still see limited evidence that we’ve moved beyond that point, but that is what is needed for these next steps.
Speaking of deals, as expected Europe has managed to cobble together yet another deal for Greece:
Greece’s euro partners have agreed to hand over the next disbursement of the country’s bailout loans. The cash-strapped country will get a total of €49.1 billion ($64 billion) between now and March.
Greece needs the money to stay afloat and avoid a potential default. Officials said the country would get €34.3 billion ($44.7 billion) in the coming days.
The Eurogroup statement on Greece can be found here.
The deal comes after Greece announced that it had successfully completed its debt buyback with €31.9 worth of bonds offered up by private sector creditors with the average at 33.8% of face. Under the deal Greece will be able to write of approximately €20bn in debt given only €11bn was spent funding the deal. The issue is that this didn’t quite make the agreed target, so once again someone is going to have to fiddle the numbers to keep everyone happy:
Eurogroup chief Jean-Claude Juncker insisted that the IMF would stay on board with the Greek program even though the cost of the buyback was 1.2 billion euros higher than expected and would reduce debt by 9.5 percent rather than 11 percent of GDP.
“The IMF will take part in the program,” Juncker said at a news conference. He added that it “was not certain” that additional measures would be needed to bring Greece’s debt down to 124 percent by 2020.
Rehn pointed towards changes in co-financing rules for EU structural funds could bridge the gap. He said the calculations would be made early next year.
It all sounds very positive, which it is if you consider the alternative, but its really just another “can kick” for Greece in hope it can stay out of the headlines for a few quarters. Very little of this bailout money will make it into the Greek economy, there is still yet another round of multi-billion dollar fiscal tightening to occur and you only have to look at the pre-buyback debt break down to realise how little of a dent €20bn will make. Remembering once again, these new bailouts are new debts that will be added to the tab.
As I mentioned on Tuesday, although we have seen some renewed stability in financial markets the same cannot be said for the real economies of periphery Europe. Overnight Greek unemployment was reported for Q3 and the results were just as you’d expect:
Greece’s unemployment rate increased notably in the third quarter, data released by the Hellenic Statistical Authority showed Thursday.
The unemployment rate increased to 24.8 percent in the third quarter from 23.6 percent in the second quarter. In the third quarter of 2011, the jobless rate was 17.7 percent.
The ECB also released its latest monthly bulletin which again shows the same downward trends in private sector lending across the Eurozone.
The annual growth rate of MFI loans to households (adjusted for loan sales and securitisation) declined to 0.8% in October, down from 1.0% in the third quarter and 1.4% in the second quarter, thereby continuing the trend observed since mid-2011. That further weakening mainly reflected the deterioration of economic and housing market prospects, as well as the need to deleverage following past excesses in a number of euro area countries. Lending for house purchase remained the main driver of MFI loans to households (see Section 2.7 for more details).
The annual growth rate of MFI loans to non-financial corporations (adjusted for loan sales and securitisation) stood at -1.5% in October, down from -0.5% in the third quarter and 0.3% in the second quarter. That reflected a strong decline in corporate borrowing between August and October. That reduction was broadly based across maturities, with short-term loans (i.e. those with a maturity of up to one year) declining more strongly than longer-term loans (see Section 2.6 for more details).
Overall, lending to non-financial private sectors slowed further, with both demand and supply factors continuing to have an impact on developments. The slowdown in economic momentum, a weaker outlook for housing markets in a number of euro area countries, lenders’ increased risk perception and persistently high levels of uncertainty – all reflected in indicators of business and consumer confidence – are weighing on demand for loans. Moreover, in some countries, internal and other external funding sources (particularly debt securities issuance) offer favourable financing opportunities, dampening demand for bank loans. In other countries, elevated sectoral debt levels necessitate deleveraging, which is likely to weigh on the provision of loans in years to come.
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Looking ahead, given the projections for economic activity, continued moderate growth in household loans and further weakening of growth in loans to non-financial corporations would be in line with historical regularities for these two sectors – with loans to households moving in line with economic activity and loans to non-financial corporations responding with a lag.
So some political deals to end 2012, but the downtrend is still firmly in place as we roll into 2013. There will be December Eurozone flash PMI data tonight, so keep your eye on the @macro_business twitter feed.