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Why the ESM direct bank recap deal is not done yet

The Eurogroup has just come to an important conclusion as regards the ESM direct bank recap instrument. The importance of this decision is very signif

Publishing date
21 June 2013

The Eurogroup has just come to an important conclusion as regards the ESM direct bank recap instrument. The importance of this decision is very significant and shows discernible progress on the way to a complete banking union. Yet, at the same time, important problems can still arise. Peter Spiegel has a good summary of yesterday’s deal and Gabriele Steinhauser tweeted the full text of the conclusion.

Is the deal really closed? The answer is no. The ESM currently does not have the instruments to do direct bank recap. For this, a decision based on Article 19 of the ESM Treaty will be required and the Eurogroup statement does say that national procedures need to be finalized before the ESM Board can take such a decision. The most significant obstacle in this respect will be the German Bundestag. In fact, the ESM Finanzierungsgesetz. Article 2 of the German implementation law of the ESM treaty explicitly excludes direct bank recap. For yesterday’s decision to become effective, the German Bundestag will therefore have to change the German law. In the absence of that vote, the German ESM member Wolfgang Schäuble will not be able to decide on the bank recapitalization instrument.

The big question is whether the current government in Germany will be able to still pass the legislative changes or whether this will fall in the next legislative period. I suspect that this is quite unlikely. It will be difficult for the German parliamentarians to agree to a bailout of banks in other countries right in an electoral campaign. Also, the necessary time lags to pass a new legislation may be difficult to meet. So overall, this is an important step forward but it not a done deal yet.

About the authors

  • Guntram B. Wolff

    Guntram Wolff is a Senior fellow at Bruegel. He is also a Professor of Public Policy and Economics at the Willy Brandt School of Public Policy. From 2022-2024, he was the Director and CEO of the German Council on Foreign Relations (DGAP) and from 2013-22 the director of Bruegel. Over his career, he has contributed to research on European political economy, climate policy, geoeconomics, macroeconomics and foreign affairs. His work was published in academic journals such as Nature, Science, Research Policy, Energy Policy, Climate Policy, Journal of European Public Policy, Journal of Banking and Finance. His co-authored book “The macroeconomics of decarbonization” is published in Cambridge University Press.

    An experienced public adviser, he has been testifying twice a year since 2013 to the informal European finance ministers’ and central bank governors’ ECOFIN Council meeting on a large variety of topics. He also regularly testifies to the European Parliament, the Bundestag and speaks to corporate boards. In 2020, Business Insider ranked him one of the 28 most influential “power players” in Europe. From 2012-16, he was a member of the French prime minister’s Conseil d’Analyse Economique. In 2018, then IMF managing director Christine Lagarde appointed him to the external advisory group on surveillance to review the Fund’s priorities. In 2021, he was appointed member and co-director to the G20 High level independent panel on pandemic prevention, preparedness and response under the co-chairs Tharman Shanmugaratnam, Lawrence H. Summers and Ngozi Okonjo-Iweala. From 2013-22, he was an advisor to the Mastercard Centre for Inclusive Growth. He is a member of the Bulgarian Council of Economic Analysis, the European Council on Foreign Affairs and  advisory board of Elcano.

    Guntram joined Bruegel from the European Commission, where he worked on the macroeconomics of the euro area and the reform of euro area governance. Prior to joining the Commission, he worked in the research department at the Bundesbank, which he joined after completing his PhD in economics at the University of Bonn. He also worked as an external adviser to the International Monetary Fund. He is fluent in German, English, and French. His work is regularly published and cited in leading media. 

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