Eurozone finance ministers on Monday agreed to move forward with a stalled package of measures reforming the European Stability Mechanism (ESM) bailout fund, giving it a bigger role to play in crisis prevention.
The changes should ease access to lending with precautionary credit lines from the ESM, and also allow that institution to serve as a financial safety net for the Single Resolution Fund (SRF), which helps ailing banks.
“Since the onset of the pandemic, our group has shown our determination to tackle the economic challenges head on,” Eurogroup president Paschal Donohoe said on Tuesday, hailing what he sees as a positive signal to financial markets.
“Today’s agreement again confirms our unity of purpose,” said Donohoe, who is also Irish finance minister.
“The reform of the ESM strengthens the euro and the entire European banking sector,” German Finance Minister Olaf Scholz, whose country currently holds the rotating EU presidency, said in a statement shortly after the deal was struck.
“With this, we are making Europe’s banks more crisis-proof and supporting the real economy,” he added, noting that the new backstop for the SRF is being brought forward by two years.
The ESM treaty changes should be signed in January, according to a statement from the Eurogroup, allowing national ratification processes to begin.
The new backstop for the SRF should start in 2022. The ESM was introduced by the 19 states using the common currency in the immediate aftermath of the euro crisis to rescue ailing states from bankruptcy.
But the eurozone identified a raft of long-term reforms it needs to implement, going beyond those agreed on Monday relating to the ESM.
Some progress on the ESM reform package had been made late last year, but seeking consensus proved tough amid disagreement between more fiscally conservative northern states and those in the south, who were the worst hit by the crisis.
Last time around, no final consensus was reached because of last-minute criticisms in Italy. The fund is politically toxic in Italy, because the main ruling party, the populist Five Star Movement (M5S), sees it as a tool through which the European Union can impose austerity on debtor countries.
Italian Finance Minister Roberto Gualtieri signalled earlier on Monday that Rome was now happy with the reform package on the table.