Tuesday, 22 December 2020
Good morning Future is blue readers,
This week we are very pleased to share with you a new podcast, the first of more to come about Europe’s economic and policy-related challenges. We hope that over the next months we will bring new ideas for a more inspiring debate about Europe.
In this first episode, Carlos Carnicero Urabayen hosts a discussion with Iain Begg, Professorial Research Fellow at LSE and Funcas Europe, and myself, where we analyse the key developments that will shape Europe’s agenda over the next year.
We’re also sharing with you today a short post by Funcas analyst Miguel Carrión on the process to complete the banking union and the role of the resolution backstop. More details below.
As usual, see at the end what we are reading these days.
2021 will perhaps be regarded as the year of vaccination. We are leaving an unprecedented crisis. The economic shock of 2020 has been huge for Europe’s economies. With coveted vaccines already being distributed and Europe’s plans for its most ambitious public spending around the corner, 2021 should be the year of recovery.
In this first podcast we cover the challenges ahead for Europe's recovery plans, what to expect from the new relationship between the EU and the UK and what to expect from a Biden presidency here in Europe.
Access here & subscribe to our podcast.
Completing the banking union: the key role of the resolution backstop, Miguel Carrión
At the end of November the Eurogroup decided to proceed with ratification of the reform of the European Stability Mechanism it had agreed a year earlier. Perhaps more important, however, was the decision to accelerate by nearly two years the introduction of an ESM backstop to the Single Resolution Fund.
The SRF backstop was originally intended to be introduced by the end of 2023. Now it will do so by the start of 2022. This was done despite the fact that several member states do not meet the quantitative risk-reduction criteria previously agreed as a condition for political agreement to introduce the backstop.
It is probably the case that the Covid-19 pandemic has made the introduction of the ESM backstop to the SRF more urgent.
Increased lending to both the private and public sectors has made banks fall behind in meeting their targets for issuance of bail-in-able liabilities. In addition, already by mid-2020 there has been a significant worsening of the credit quality of still performing loans, also in so-called creditor countries of the eurozone. And finally, loans under government credit guarantees or bank moratoria have added up to one percentage point to the non-performing loan ratio.
All in all, it seems quite likely that the economic impact of the pandemic could cause some significant banks to fail before 2024 when the SRF backstop would be operational according to the eurogroup's old plan. With the backstop in place in a bit more than a year at most, the eurozone might just be prepared to weather a wave of business insolvencies that the pandemic is widely anticipated to cause.
You can access here Miguel Carrión’s full article.
What we are reading
20 picks of 2020
Bruegel has put together a collection of blogs, publications, podcasts and reports to better reflect on the key developments that this convulsive 2020 has brought.
The year in 2021: ten issues that will shape the international agenda
Interesting report by CIDOB think tank on the key drivers for international politics in 2021.
Relief at a deal – if there is one – should not obscure its thinness
Good read on the key drivers in this final phase of Brexit talks.
Is the world up to the challenge of mass COVID-19 vaccination?
The magnitude of the task requires bold collective action from multinational organizations, governments and industries.
European strategic autonomy and a new transatlantic bargain
Insightful read on Europe’s power ambitions and what to expect from Biden’s presidency and the EU
We wish you all the best for the new year ahead.
Raymond Torres, Funcas Europe Director