With Banks and Budgets on Agenda Here Are Eurogroup’s Takeawaysby and
Euro-area finance ministers met on Monday for the first time since the U.K. voted to leave the European Union last month. The following are the main takeaways from their gathering, which also took place as the Italian government seeks leeway to recapitalize banks and the EU moves to sanction Spain and Portugal for missing budget targets.
EU Economic Affairs Commissioner Pierre Moscovici said the June 23 referendum may lower gross domestic product growth by between 0.2 percent and 0.5 percent over the next year and a half. “The U.K. Leave vote has surprised markets and possible uncertainty has increased significantly,” said Moscovici. “The longer the uncertainty lasts, the costlier it will be for the economy.”
The finance chiefs also welcomed greater clarity about the next British prime minister after Theresa May locked up the job and signaled the need for patience over the negotiations on new EU ties with the country.
Irish Finance Minister Michael Noonan said that, even with the prospect of May succeeding David Cameron by mid-week, the EU and Britain have to brace for lengthy talks.
Dutch Finance Minister Jeroen Dijsselbloem, who leads the group of his euro-area counterparts, said Italy must respect new EU rules requiring creditors to take losses when lenders get state aid. His comments were echoed by other ministers.
“The rules are not that old yet; they are clear,” Dijsselbloem said. “They are, of course, also strict in the sense that they make very clear when there needs to be a bail-in and who needs to be bailed-in in what order.”
Germany’s Wolfgang Schaeuble reiterated Berlin’s hard line by saying that backtracking on the new bank-industry obligations would risk triggering another European debt crisis and by stressing that “various possibilities to respond adequately to any situation” exist in the current framework.
“We all know that the European rules we created as a lesson learned from the financial and banking crisis were created to avoid a repetition,” Schaeuble said.
The euro-area ministers are in “broad agreement” about the need to give the European Commission the go-ahead to propose penalties on Spain and Portugal for failing to bring their budget deficits within the EU’s limit of 3 percent of GDP within previously fixed deadlines, Dijsselbloem said.
At the same time, the ministers highlighted the flexibility within Europe’s fiscal rulebook to spare offending euro-area countries fines as high as 0.2 percent of their GDP and a suspension of European regional funds of up to 0.5 percent of their GDP.
“Both Portugal and Spain weren’t in compliance with the rules and so it’s just
a matter of fact that that finding will be made and should be made,” Ireland’sNoonan said. “But from Ireland’s point of view it would be sufficient to have the finding that they were in breach; we’re not interested in having sanctions applied to them.”