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US News Eurozone should become more crisis-proof

01:25  01 december  2020
01:25  01 december  2020 Source:   dw.com

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The eurozone debt crisis is reemerging once again with concerns over the sustainability of the national debts of many of the southern European states.

The eurozone passes an important milestone on 20 August. The date marks the formal end of the bailout of Greece. The eurozone responded by creating bailout agencies which borrow money in the financial markets to lend to countries in difficulty.

Federal Finance Minister Scholz and his EU colleagues have finally agreed on a reform of the ESM euro rescue package. In this way, the euro zone wants to better arm itself against future financial and banking crises.

Provided by Deutsche Welle © Michael Kappeler / dpa / picture alliance Provided by Deutsche Welle

"There are decisions, especially at EU level, that sound so technical that it is difficult to recognize their political impact at first. Today's agreement on the reform of the European ESM rescue package is such a decision ", said Federal Finance Minister Olaf Scholz (article picture) after a video conference with his EU colleagues. It strengthens the euro and the entire European banking sector. "Because we are making the euro zone even more robust against attacks from speculators."

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Eurozone crisis explained. Published. 28 September 2012. Worries are increasing that Spain may become the fourth eurozone country to require a full bailout. It has already asked for help with its banks - its main problem - and will receive up to 100bn euros (5bn; £80bn) to be targeted at its

The Eurozone crisis is an ongoing financial crisis that has made it difficult or impossible for some countries in the euro area to repay or re-finance their government debt without the assistance of third parties.

"Excellent news"

The reform of the ESM (European Stability Mechanism) is intended to facilitate precautionary credit lines for states in economic and financial crises. At the same time, the institution, based in Luxembourg, is to assume the role of reinsurance for the SRF bank resolution fund. This common "backstop" will start two years earlier than originally thought, explained Scholz. The start date is now 2022 instead of 2024.


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This will make "Europe's banks more crisis-proof" and support the real economy, the German minister added. "Because a stable banking sector is an important prerequisite for growth and employment in Europe. At the same time, we are further reducing the risks on bank balance sheets. All of this is excellent and important news for our companies and for Europe's citizens." EU Economic Commissioner Paolo Gentiloni and Eurogroup leader Paschal Donohoe also rated the agreement as a "great success".

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Banks should set aside more assets to cover losses through private funding or national governments if necessary. And it needs more detail and acceptance by eurozone leaders. They in turn will struggle to sell these ideas to voters who are weary of austerity and bailouts for banks and governments.

Read more on this story: Greek bailout crisis in 300 words. At the worst moments of the crisis , there were doubts about whether the eurozone would survive at all. There seemed to be a real possibility that Greece and perhaps others might have to give up the euro .

Pressekonferenz in Corona-Zeiten: Eurogruppen-Chef Donohoe (l.) und EU-Wirtschaftskommissar Gentiloni © Francisco Seco / AP / dpa / picture alliance Press conference in Corona times: Eurogroup leader Donohoe (left) and EU Economic Commissioner Gentiloni

The ESM was launched in 2012 - in the middle of the euro crisis, as numerous countries struggled with excessive debt and problems in their banks. Billions in aid from the rescue package and its predecessor, the EFSF, have already gone to Greece, Cyprus, Spain, Ireland and Portugal.

The EU finance ministers assume that the Corona crisis could "interrupt or slow down" the positive trend in the elimination of financial risks, as they jointly declared. They therefore emphasized the need to "monitor developments closely" and to tackle weak points resolutely.

Long blockade by Italy

The ESM reform was actually already negotiated at the end of last year. However, Italy had reservations because of internal political resistance and did not give the green light for the start of the ratification process. This can now begin with the agreement reached on Monday. First of all, the new ESM contract will be signed in January. According to ESM boss Klaus Regling, ratification should then take around a year.

wa / ml (afp, rtr, dpa)

ECB expands measures in the fight against the corona crisis .
Europe's monetary authorities are bracing themselves with further billions against the economic consequences of the second corona wave. © Boris Roessler / dpa Christine Lagarde, President of the European Central Bank (ECB). The emergency purchase program for government bonds and corporate securities will be expanded by 500 billion to 1.85 trillion. That was decided by the Council of the European Central Bank (ECB) in Frankfurt.

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