Business World

Monday 18 March 2019

Schaeuble rules out any retrospective help over bank bailouts

Wolfgang Schaeuble
Wolfgang Schaeuble

Thomas Molloy Deputy Business Editor

GERMAN Finance Minister Wolfgang Schaeuble has once again ruled out helping countries like Ireland which have already bailed out banks and repeated calls for treaty change.

A European banking union "emphatically is not and cannot be a mechanism to redistribute the burden of yesterday's crisis among its participants", he wrote in an article published in 'Banker' magazine yesterday. "Whatever legacy issues come to light now will have to be tackled nationally."

Finance Minister Michael Noonan is trying to persuade other European countries to retrospectively pay for the €64bn bailout of Irish banks. Mr Noonan has already admitted that any payment won't come this year and is extremely unlikely to come next year. Many analysts doubt countries such as Germany, Finland and the Netherlands will ever agree to such a move.

The Irish Government has also repeatedly argued against treaty change which could require another bruising referendum here.

Mr Schaeuble writes that the backstop of the European Stability Mechanism (ESM), the rescue fund, would only come into play in "extreme circumstances".

He blamed Ireland's collapse on "a hypertrophied and damaged banking sector" that left Ireland "with a bill they could no longer honour".

Despite this, Dr Schaeuble writes that "a mandatory bail-in regime would ensure that those who fund the banks would have to share the costs of their mistakes in the future – and would know this before they invested. Chances and risks had to be reunited, wrong incentives to be stopped."

In an apparent reference to Ireland, the German finance minister welcomed efforts by bailed-out countries to reform their economies.

"Under acute pressure, many members of Europe's currency union have undertaken courageous economic reforms. As reflected in their improving fundamentals, these countries are better equipped to face global competition today than at any time since they adopted the euro."

Moves to establish an EU-wide banking union have developed at a rapid pace in recent months. Mr Schaeuble described the banking union as "perhaps the most impressive architectural change under way" in Europe.

"The eurozone crisis had the potential to prise the continent apart. Instead, it has ushered in the most ambitious step towards European integration since the launch of the euro itself. With it, the creation of a single market for financial services, initiated in 1999, would find its completion."

While admitting that a "carefully crafted" agreement would work, the German finance minister adds that the union could be much better if there were treaty change. "Should all EU member states agree to a small number of narrowly defined treaty changes, it could go much further. Such amendments would not only allow for the creation of a truly centralised resolution authority but also for a more efficient and clearer separation between the supervisory and monetary functions of the ECB. This would make it much easier for EU member states outside the eurozone to join and thus avoid fragmenting the European single market for financial services," he added.

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