Germany says nein to eurozone banking safeguards

Negotiations on joint deposit insurance system suspended due to deadlock between Berlin and Rome.

Germany says nein to eurozone banking safeguards

Eurozone countries on Tuesday hit pause on reform plans designed to protect savers against a future banking crisis, amid deep resistance in Berlin.

For months, deputy finance ministers have been meeting behind closed doors to agree a timebound plan to introducing a shared deposit insurance system, which would help protect savers and public money from a financial collapse.

The European Deposit Insurance Scheme would create a central cash pot financed by banks to serve as a backup if national deposit guarantee funds run empty. But the idea for the common insurance policy, first proposed in 2015, is highly controversial within Germany’s political circles.

At a closed-door meeting Tuesday, deputy finance ministers agreed negotiations should be put on ice until after September’s federal election in Germany, in the hope of reaching an agreement with the next German government by December, four EU officials told POLITICO.

Berlin refused to sanction a work plan laying out steps to create an EDIS without ensuring that banks reduce the amount of sovereign debt they have on their books — something Rome strongly opposes.

The delay means finance ministers no longer face the prospect of all-night talks when they gather in Luxembourg for this month’s Eurogroup meeting, where EU officials had expected a showdown between Germany and Italy to agree on a final work plan for a key component of the bloc’s banking union plans.

Without the insurance scheme in place, people’s deposits remain vulnerable in the next financial crisis — a threat that’s growing by the day as pandemic-hit businesses struggle to pay back their bank loans while lenders struggle to turn a profit. A tsunami of bankruptcies could push many European banks over the edge, leaving EU governments, many of which are heavily indebted due to the pandemic, with the nightmare task of handling a banking crisis.

A spokesperson for Eurogroup President Paschal Donohoe declined to comment on the outcome of Tuesday’s meeting, but said, “Although the Banking Union remains a challenging task and a sensitive policy area, the President of the Eurogroup is committed to finding consensus among all finance ministers and delivering an ambitious work plan as soon as possible.”

Germany’s election makes the negotiations particularly difficult given a deep-seated fear within many Northern countries that banks in Southern Europe are in poor health, a concern born out of the sovereign debt crisis.

Agreeing to EDIS would put the German banks and others on the hook for bailing out Southern savers. According to documents viewed by POLITICO, Berlin refused to introduce EDIS before the EU introduces fresh measures that will reduce the amount of public debt that banks buy from their sovereigns.

The relationship is known as the doom-loop, as a government default would wipe out the country’s lenders, and has only deepened since the pandemic struck.

However, some economists question the Northern European rationale. “Some governments may prefer not to do anything and to justify it by saying all banks in the south are so dangerous,” said Nicolas Véron, a senior fellow at Bruegel in Brussels. “That point may have been true five years ago, but is not that compelling now,” after Southern countries made strides in recent years to clean up bank balance sheets and reduce financial risks in the industry.

Rome is dead set against initiatives that would discourage its banks from buying up Italian state bonds, officials who took part in Tuesday’s meetings said. Doing so could push up the cost of borrowing, a dangerous scenario for Italy considering its public debt pile of over 155 percent of economic output.

Both sides are being stubborn, officials said, pointing to other countries’ willingness to give ground on their red lines in the hopes of securing a work plan with clear objectives.

After drafts suggested ministers could sign off on a watered-down work plan with few commitments to get something over the line, Donohoe and his team of negotiators opted to seek to revive talks in the fall, rather than fudge a deal.

The Irishman must now explain his decision in a letter to EU leaders, who had been expecting results by the time of next week’s summit. Deputies agreed Tuesday that no “finger-pointing” should emerge from the stalemate, three officials said.

Source : Politico EU More   

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Why Joe Biden must make Vladimir Putin lose

Western leaders must move on from their strategy of containment and take tougher measures against Russia.

Why Joe Biden must make Vladimir Putin lose

Nicolas Tenzer is a French foreign policy analyst and writer, author of three official reports to the French government and guest professor at Sciences-Po Paris.

There can be just one winner in the showdown between Vladimir Putin and the West.

That’s something that U.S. President Joe Biden should keep in mind as he prepares to meet with the Russian president on Wednesday.

Faced with the Russia’s aggressive attitude abroad, Western leaders have generally focused on preventing further advances by Putin’s revanchist regime — what is traditionally referred to as “containment.” They see this as the firmest possible attitude.

The trouble is that’s exactly what Putin wants. The status quo constitutes a major risk because it represents a net gain for Moscow. It validates the Russian leader’s strategy of fait accompli.

In concrete terms, a containment strategy means that it would be impossible for Georgia to recover the 20 percent of its territory that has been de facto annexed by Russia, or for Ukraine to recover Crimea. It would endorse the existence of a frozen zone in part of Ukraine’s Donbas region where low-intensity conflicts would continue. Kyiv would not regain its territorial integrity.

In Belarus, this approach would mean that the West would accept the country remain in Moscow’s zone of influence — even though, as U.S. Secretary of State Antony Blinken has said, this notion is incompatible with our conception of the order established after World War II and with the freedom of peoples.

The United States and the European Union must make it clear that Russia has no special rights in Belarus. European leaders must resist the temptation to declare that the Kremlin could be part of the solution, when it is, in fact, the main problem.

In Syria, under the containment strategy, Russia would continue to support, along with Iran, the regime of Bashar al-Assad, which is guilty of crimes against humanity, and would continue to perpetuate its own war crimes against the Syrian population. This approach would also endorse the lasting presence of Russian troops in Nagorno-Karabakh, making Moscow the arbiter of conflicts in this region of the Caucasus — and the real winner of the conflict there.

A pure freeze in relations between Russia and the West would not prevent Moscow from continuing its destabilization operations in Africa either. These are taking place in the Central African Republic, Mali and Chad, with the help of Russian mercenary company Wagner. Given the link between conflict and migration, these have serious consequences for the security of European democracies.

As former Obama adviser and U.S. Ambassador to Russia Michael McFaul recently wrote, the goal cannot be to improve relations with Russia. Such an improvement would mean giving in to Putin’s demands, refusing to counter him and, as we have done all too well over the past 21 years, accepting the concessions demanded by the Russian president. As the Belarusian researcher Tadeusz Giczan stated, the only area in which Moscow should have a say is in Russia itself — but even that does not mean it can repress its own people.

Democracies are locked in a kind of zero-sum gamewith Moscow. If we don’t win, Russia will. In order to clinch a victory, however, we have to reverse Moscow’s aggressive expansion of influence. Russia must gradually lose what it has conquered so far.

We find ourselves in this position for a simple reason: We have let the Kremlin set the agenda. We have reacted, but we have not acted. We have not been able — through cowardice, lack of intelligence and sometimes complicity — to take the initiative. This trend cannot continue. Russia must be made to lose.

To accomplish this, we must weaken not so much the country as the narrow circle of leaders benefiting from Putin’s policy of aggression.

This will require, first of all, that the U.S., Europe and the United Kingdom agree on a flawless anti-corruption legislation. Washington and London must work with as many EU capitals as possible — even if it means bypassing reluctant European countries in which some near the circle of power benefit economically and financially from the current approach.

Russian opposition leader Alexei Navalny’s team has suggested measures against 35 individuals from Putin’s inner circle, a proposal recently supported by the newly created anti-corruption caucus in the American Congress. In addition to this, all important economic agreements with Moscow must be suspended. The Nord Stream 2 pipeline is just the most critical example.

In Ukraine, we need to provide much more assistance to the military, enabling it to better respond to Russian attacks and stop thinking that there can be a compromise with Moscow on the back of Ukraine’s territorial integrity. Even if it will take a long time, we cannot refuse the principle of Ukraine’s possible membership in NATO, or even the European Union. The same applies to Georgia.

In Belarus, in addition to heavy sanctions against repressive authorities, we must also recognize the opposition in exile as the only legitimate transitional government before elections, which will have to be supervised by independent and trustworthy observers. The question of regime change must be openly addressed, while making it clear that no one is suggesting that this should happen by force. Let’s stop using the empty words “inclusive political solution,” which mean nothing.

In Syria, allies must bypass the obstacle of Moscow — supported by Beijing — systematically vetoing, in the U.N. Security Council, any delivery of international aid going into the country outside the control of the regime. The allies must send a strong message to those Gulf states that would be tempted to go along with Russia that recognition of the Assad regime will not be without consequences.

Finally, sub-Saharan Africa cannot remain a kind of terra incognita outside the atlas of the great powers, in particular the U.S. Here too, heavy sanctions against the inner circle of Russian leaders should be deployed to put an end to the aggression.

It is time for the winds to change against Putin’s regime. Only by making sure Russia loses its game of chicken with the West, can the security of Western democracy be guaranteed and Putin’s potential imitators be dissuaded.

Source : Politico EU More   

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