Eurozone policymakers could be forgiven for feeling they have their hands full battling a record-breaking economic contraction and unprecedented health crisis. But alongside that eye-watering challenge, they also have a mountain of unfinished business when it comes to the construction of the single currency.
One of the most glaring examples is the long-awaited legal revamp of the bloc’s bailout fund, the European Stability Mechanism, and the closely related job of equipping the region’s banking union with extra financial muscle.
Finance ministers agreed in 2018 to a wide-ranging overhaul of the current system, which would involve a revised ESM treaty and the creation of a common backstop to the region’s Single Resolution Fund, which handles embattled banks. Getting the deal over the line and enacted into law has been a lengthy and painful exercise.
Paschal Donohoe, president of the eurogroup of finance ministers, wants to bring that process to fruition and use an upcoming eurogroup meeting next Monday to finally move closer to a deal.
The ESM was set up during the sovereign debt crisis to help stricken governments. Under the proposed treaty reform — which needs to be ratified in national parliaments — it would be granted extra flexibility.
Alongside this is the SRF, a pot of money that has been around since 2016 and building up cash from a levy on the banking system to cover the cost of winding down failing lenders. This will be supported by an ESM “backstop” for the fund — emergency money should it ever run out of cash. The hope is to introduce that backstop two years before the target date of 2024.
But to agree the early introduction of the backstop, northern hawks such as the Netherlands, Germany and Finland want to be sure that southern member states have made sufficient efforts to reduce risks and tackle bad loans in their banking systems. This is doubly sensitive given the euro area is heading for a 7.8 per cent contraction in 2020 and officials are preparing themselves for a new bout of non-performing loans next year.
Meanwhile, Italy’s government will need to be prepared to embark on the politically unpalatable process of securing ratification of the revised ESM treaty — a sensitive topic in a country where the mere mention of the ESM provokes howls of derision from the populist party of Matteo Salvini.
With elections looming in countries including the Netherlands and Germany next year, there are strong arguments for pushing this process through as quickly as possible. But urgency is not only political: if the eurozone is to get to grip with the unfinished business of completing the banking union, it needs to prove it can handle what should be relatively low-hanging fruit.
Chart du jour: the mythical lockdown trade-off
Martin Wolf takes a look at the lessons the world can learn from the pandemic. One of the big takeaways is that the economy doesn’t have to suffer to save lives. An analysis by the Institute for New Economic Thinking measures deaths from Covid-19 per million, versus total economic loss compared with 2019. The results show that countries such as Sweden, which has kept its economy open, had a higher death rate and only slightly less economic damage compared with countries like Austria that locked down quickly.
Europe news round-up
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Political ads on social media could face a tough new set of rules according to a draft plan from the European Commission seen by the FT. The rules will seek to stop websites that host political ads from making money and will force social media platforms to warn users about content if it becomes popular. The commission is also looking at fines for foreign agents that spread disinformation.
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The commission received a dressing down from the union’s independent ombudsman on Wednesday for awarding high-profile consulting work on sustainability to BlackRock without considering the firm’s conflicts of interests. BlackRock’s contract to provide the EU with advice on sustainability in banking was criticised earlier in the year by MEPs, who pointed out the firm’s investments in European banks and fossil fuels impeded its ability to deliver impartial advice. (FT)
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Days after he announced his resignation as party leader over an anti-Semitism scandal, Thierry Baudet of the Netherlands’ populist Forum for Democracy (FvD) has said he will run as a candidate in an upcoming leadership contest. It has caused even more consternation in the party’s already divided ranks (NOS). Cas Mudde breaks down why the party’s implosion is great news for the far-right Geert Wilders.
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As Brexit edges closer, Ursula von der Leyen has called the remaining 37 days left to a forge a trade deal as “decisive”, telling MEPs that there are still issues “that can make the difference between deal or no deal”. British truckers got a taste of a no-deal Brexit on Tuesday when French police checked immigration papers at the Eurotunnel, as they would be expected to without a deal. The added step led to a five-mile long queue of lorries in Kent. (FT/ NYT)
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Russia’s influence in its near neighbourhood could be on the decline argues Nicolae Reutoi in Foreign Policy. Citizens in countries such as Moldova and Belarus have rejected Russian-backed candidates for more liberal choices. Russia will always be an important player in these countries, but the days of Moscow picking leaders in allies abroad are numbered.
Coming up on Thursday
The European parliament holds its final voting session on various resolutions including human rights in Belarus, abortion rights in Poland and the EU’s trade policy review.
sam.fleming@ft.com; @Sam1Fleming
david.hindley@ft.com