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The central bank said Europe faced significant
downside risks from Britain's plans to leave the EU, high
national debts, aging populations and low productivity.
The European Deposit Insurance Scheme (EDIS) is the missing part
of the plan for a full euro zone banking union which aims to
make the financial sector more resilient to shocks and less
likely to need taxpayer bailouts.
"It is necessary to complete (the) revision of the Economic and
Monetary Union to avoid the single currency still being exposed
to tensions in case of high-calibre disturbances," Bank of Spain
Governor Pablo Hernandez de Cos said on Tuesday as part of a
presentation of the central bank's annual report.
Germany, the Netherlands and other northern countries fear
agreeing to EDIS now would mean they could be burdened with
repaying deposits in countries like Italy, Greece or Portugal,
where banks are vulnerable, often as a legacy of the sovereign
debt crisis of 2010-2015.
The banking union must be completed before the euro zone faces
another recession or financial crisis, a source at the Bank of
Spain said.
"It is essential to develop this macro-strategy for the
protection of capital markets in order to offer all citizens and
non-financial companies a mix of financing between bank loans
and markets," the source said.
IN THE HEART OF EUROPE
The bank's annual report comes as Socialist premier Pedro
Sanchez, buoyed by two electoral victories in a month, seeks to
thrust Spain back into the heart of European Union
decision-making after years of domestic woes reduced Madrid's
influence.
Sanchez's plans include pushing for a common budget for euro
zone members, an EU-wide unemployment fund and climate measures.
He also favors setting up a European Investment Stabilisation
Fund to prevent future economic crises.
"The capacity for mutual assurance would be strengthened if the
creation of a cyclical stabilization instrument was approved, a
proposal that has not yet reached a sufficient degree of
consensus (within the EU)," De Cos said.
The Bank of Spain also said it a risk-free EU asset was needed
as part of a closer European integration.
"It will not be easy to get the political consensus to move in
that direction, but a window of opportunity opens up with a new
European political term and we believe that it is absolutely
necessary," a Bank of Spain source said.
A European Commission plan to create European safe assets backed
by euro zone sovereign bonds has been blocked by Germany over
fears it would increase German funding costs.
On the economy, the central bank warned that the Spanish labor
sector remains highly dysfunctional, with unemployment rates
only expected to fall to around 12% by 2021. It said increased
productivity was the only mechanism for sustainable growth.
Spain's economy suffered a near five-year slump from 2008 to
2013, when unemployment soared to almost 27%, but has since
rebounded and was 14.7% in the first quarter.
"While it's true that the unemployment rate has fallen
significantly since the economic recovery began, it is still
very high," De Cos said.
(Editing by Catherine Evans)
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