Photographer: Jasper Juinen/Bloomberg

Euro Area Eyes New Role for Bloc’s Bailout Fund

  • Finance ministers gather in Luxembourg to discuss ESM
  • Member states seek to strengthen the euro-area backstop

Euro-area finance ministers gathering in Luxembourg on Monday discussed the future role of the bloc’s bailout fund as nations push to capitalize on the currency union’s momentum and seek to better shield the region from future financial shocks.

Even as a consensus has emerged among the 19 eurozone nations to strengthen the European Stability Mechanism, the bloc’s bailout fund, views differ on how much power the body should have and what its position should be within the European Union’s institutional hierarchy.

Eurogroup meeting of European finance ministers in Luxembourg on Oct. 9.

Photographer: Jasper Juinen/Bloomberg

As member states move to strengthen the euro area, political and economic tailwinds have allowed finance ministers to debate subjects previously deemed controversial, such as the completion of a common set of banking rules and closer fiscal integration. One idea supported by large euro-area members including Germany is to turn the ESM -- which has given out emergency loans to Greece, Ireland and Portugal -- into a body similar to the International Monetary Fund, with more oversight on fiscal matters and rescue programs.

“The ESM has a very strong role to play, not just in crisis management but also in the prevention of future crises,” Dutch Finance Minister Jeroen Dijsselbloem told reporters after the meeting. “There was quite broad support in involving the ESM in providing a backstop to the single resolution fund.”

European Monetary Fund

Germany’s outgoing finance minister, Wolfgang Schaeuble, said the EU has no choice but to deepen euro-area integration within the existing EU framework as long as there’s no change to the bloc’s fundamental rules. We need to “use the instrument of intergovernmental cooperation in areas where we have to move ahead,” Schaeuble said on his way into the meeting.

An expansion of the ESM’s power to undertake broad audits evaluating the financial health of member nations could run into a conflict with the European Commission, the EU’s executive arm, which currently is in charge of such checks.

Giving the ESM a broader remit would also hand more powers to the fund’s board of governors -- made up of euro-area finance ministers themselves. Countries in favor are pushing to strengthen the role of the fund, while the commission would most likely prefer to keep as many of its powers concentrated in Brussels.

While Commission President Jean-Claude Juncker has also proposed converting the bailout fund into a European Monetary Fund, he stressed this should “be firmly anchored in the European Union.’’

Changes to the ESM need “to be incorporated in the framework of the EU institutions,” EU Commissioner Pierre Moscovici says. “The commission already has its own competencies as far as budget surveillance is concerned.”

— With assistance by Nikos Chrysoloras, Helene Fouquet, Alessandra Migliaccio, Lorenzo Totaro, and Stephanie Bodoni

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