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June's meeting of eurozone finance ministers is being billed as the year's most significant decision point for the bloc, but looming German elections look set to stall progress on completing Banking Union and a review of national fiscal policies is unlikely to prompt any withdrawal of fiscal stimulus in the near term, European officials said.
Ministers are due to agree a plan to tackle the four remaining obstacles to full banking union at the June meeting, which is due to be signed off by EU leaders at a subsequent summit. But the Eurogroup's April meeting showed that the differences between member states on the thorny issues of joint deposit insurance, regulatory treatment of banks' sovereign bond holdings and cross-border banking integration remain as wide and as difficult to bridge as ever.
While one official noted that all that needs to be agreed at this stage is a plan on how remaining hurdles can be overcome, others said any resulting 'workplan' may be light on commitments and dates.
"We had a good discussion in the last Eurogroup meeting in that ministers were very clear about their positions, which I think just shows that positions are very far apart," one official told MNI. "We need to see where we get in June and how complete and how concrete the workplan can be - whether that is just a statement of good intentions or more of a commitment to concrete actions by concrete dates."
Germany is also in an intransigent mood on the banking issue ahead of its September elections, a eurozone finance ministry source said, while Luxembourg is leading a revolt of various countries against any attempt to constrain the independence of their national banking authorities.
"They want to maintain the right of national supervisors to regulate national liquidity and equity buffers," the source said, noting that this would impede efficient cross border equity and liquidity management within banking groups.
DEBT WAIVER TO STAY
"Host countries are very afraid of anything that will distort the balance," the official went on. "You have bigger countries – Germany and France - they value cross border integration so as to benefit the business models of their own banks and you have Italy which doesn't want to hear about non-zero risk weighting on sovereign bonds and the Germans who want that absolutely and so it will be very, very difficult."
Eurogroup chief and Irish Finance Minister Pascal Donohoe has made progress on banking union a key priority of his chairmanship. Sources believe the June meeting will be his first big test.
Stasis is also likely to apply in the other big Eurogroup topic for June – the fiscal strategy review, say sources. Ministers have talked in the recent past of moving to a more "targeted" fiscal approach as lockdowns are eased and economies start to recover. June 2021 had been billed as the time that such a decision could be taken, but it now looks premature, sources said.
One source said it was likely that the Commission would confirm that the fiscal rules would remain suspended through next year too, following its Spring Forecasts next month.
"I would rather expect the Commission to confirm the prolongation of the escape clause until next year. In the past months, we have kept repeating the need not to withdraw fiscal support prematurely. Announcing a move to targeted support in June would seem premature."
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