Europe's leaders should use the current period of strong economic growth to fix the remaining weaknesses in the European Union's economic and monetary union, according to Klaus Regling, managing director of the European Stability Mechanism (ESM). Among the measures under discussion ahead of the June summit of EU leaders is a common insurance scheme to protect bank deposits across the euro area, but agreeing this has proved controversial, with richer countries such as Germany and the Netherlands reluctant to sign up.
"In the broadest of terms, what Europe lacks is economic risk-sharing between countries inside the euro area," Mr Regling said, speaking at a function at the Central Bank in Dublin on Wednesday.
Ministers from euro-zone countries have been examining proposals to complete the EU banking union and also develop the role of the ESM, the euro zone’s rescue fund established in 2012. One of the key proposals is a common deposit insurance scheme. Mr Regling said this was still controversial “because problems dating back to the crisis are more severe in some countries than in others”.
Deposits of up to €100,000 are already covered in euro-zone countries by national schemes, but a euro-zone-wide scheme is seen as a key way of building confidence.
“Depositors simply won’t see the need to get their money out of the bank if they know that it is not just their own government backing their deposit guarantee, but all of Europe,” Mr Regling said.
Initially, any euro-zone scheme would be likely to sit alongside national schemes. The issue will be discussed at the June summit and with leaders to see whether they can agree some kind of roadmap for its introduction in the years ahead. This summit is seen by observers as the last chance to make progress on this issue before political parties across Europe start focusing on next spring's elections to the European Parliament.
Backstop
EU leaders will also discuss whether to establish a backstop for the Single Resolution Fund, the new mechanism established to help to bail out failed banks, which will have a war chest of €55 billion by 2023. There are proposals that the ESM should be able to make additional funding available, if needed in the event of a major collapse. This could, according to Mr Regling, roughly double the funds available to the resolution fund.
The ESM could also play a more important role in future assistance programmes for countries in difficulty, Mr Regling said, with the IMF now becoming less involved in euro-area packages. The ESM disbursed cash in recent rescues during the crisis, he said, and has also been involved in programme design and monitoring. Designing future programmes “could become a joint task of the [European] Commission and the ESM.”
The ESM could also manage a programme of short-term loans to help with macroeconomic stabilisation, he said, which “could help stabilise individual euro-area countries before small problems become big ones”.
The Irish economy has made a “remarkable recovery”, he said. However, volatility in the national accounts can make it harder to assess Ireland’s performance. Ireland’s national debt level remains high, he said, when measured as a percentage of gross national income. Ireland was also more exposed to Brexit than other countries, he said.
