The deal, clinched by European finance ministers after months of
difficult negotiations, sets out a blueprint for shuttering troubled
lenders, which at the height of the euro zone's debt crisis pushed
countries like Ireland and Cyprus to the brink of bankruptcy.
But it falls short of what some nations, including France, Spain and
Italy, had sought, by ruling out direct use of funds from Europe's
rescue mechanism, the ESM, in the near-term, and setting up what
could turn out to be a cumbersome decision-making process for
winding down banks.
Earlier this week, Draghi had expressed concerns in a speech to the
European Parliament that the compromise might prove overly complex
and the financing arrangements inadequate.
But on Thursday he said he "strongly welcomed" the deal, calling it
an important step towards completion of a banking union, the bloc's
ambitious project to break the link between stricken banks and
"It's an important step towards completion of our banking union," he
said as he arrived at a summit in Brussels, where he is likely to
discuss his thoughts in detail with EU leaders.
The ECB's backing is crucial as it takes over responsibility for
supervising Europe's big banks from next year.
Other officials were more critical, with Martin Schulz, the German
president of the European Parliament, promising to reject the deal
in its current form. Under EU rules the parliament must approve the
agreement for it to take effect.
"This is comparable to dealing with an emergency admission to
hospital by first convening the hospital's board of directors
instead of giving the patient immediate treatment," he said in the
text of a speech given to EU leaders at a summit in Brussels on
"If we were to implement the ECOFIN decisions on a banking union in
this way, it would not only be a lost opportunity. It would be the
biggest mistake yet in the resolution of the crisis," he said,
referring to the body of EU finance ministers which cut the deal in
the early morning hours of Thursday.
Guntram Wolff, director of the influential Bruegel think tank,
described the funding approach as a major disappointment.
"The ESM is clearly out of the game, there will be no direct bank
recapitalizations," Wolff told Reuters. "On this front we can say
quite clearly that this deal is unsatisfactory and insufficient to
break the vicious circle between banks and sovereigns."
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In the talks, German Finance Minister
Wolfgang Schaeuble refused to budge from his long-standing position that
European taxpayer money, in the form of the ESM, not be used as a backstop
during the initial phase of so-called "banking union".
Europe has agreed to build up a resolution fund of 55 billion euros
by imposing a levy on banks, but that will take a decade. A crucial
question in the talks was who pays during the period when the fund
lacks sufficient cash.
Germany insisted that countries
themselves be accountable once a bank's creditors and investors have taken a
hit, while leaving the door ajar to mutualisation of risks over time.
It was also successful in its drive to
prevent the European Commission from obtaining sole power to decide on the
closure of banks. Instead, national governments will retain a say in such
decisions, alongside a new Single Resolution Board (SRB).
At a news conference in Paris with his
French counterpart Pierre Moscovici, Schaeuble described the result as
Economists at J.P. Morgan also praised
elements of the deal, saying those who may have expected large-scale taxpayer
funded bank recapitalizations were bound to be disappointed.
"We continue to see the direction of
travel more constructively," said Malcolm Barr in a research note.
"Germany has resisted the mutualisation
of legacy banking exposures ex ante, as always seemed likely to us. But the
commitment toward a metalized structure over time suggests to us that the German
position would ease at the margin if market pressures were to be reignited."
(Additional reporting by Robin Emmott;
editing by Luke Baker)
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