Abstract The ratification of the revised European Stability Mechanism (ESM) Treaty remains blocked by Italy—a traditionally pro-risk-sharing Member State—preventing the entry into force of the common public backstop to the Single Resolution Fund (SRF). This undermines the EU’s crisis management capacity and nullifies the risk reduction efforts made by Member States and the banking sector over the past decade. As a result, the SRF operates without a mutualized fiscal safety net. While the fund is currently well capitalized through industry contributions and EU banks have shown resilience in recent stress tests, the lack of a public backstop limits its credibility and usability, especially in the event of a systemic crisis. No sound legal, economic, or operational rationale supports Italy’s refusal to ratify the Treaty. The alternative instrument (DBRI) is functionally unusable; the reform package strikes a reasonable balance between risk-sharing and risk-reduction; and the political stigma attached to the ESM cannot be resolved without modernizing its role. This article proposes two strategic pathways to overcome the deadlock: (i) recognising that the recently agreed Crisis Management and Deposit Insurance (CMDI) reform has materially improved the usability of the SRF and, by extension, the operational relevance of the common backstop—thereby strengthening the case for ratifying the ESM Treaty; and (ii) repositioning the ESM as a more strategic instrument within the EU’s policy toolkit, including through a potential role in supporting EU-wide defence investment and in providing guarantees for collective financial assistance to Ukraine. Unlocking the ESM Treaty ratification is not only critical to completing the Banking Union—it also opens the door to positioning the ESM as a more strategic instrument in Europe’s evolving policy mix. Recent progress on CMDI Insurance reforms makes ESM ratification more urgent, as continued inaction risks weakening the EU’s financial integration and its capacity to mobilize annual investments highlighted in the Draghi Report.

Eurozone integration it is still a target and a challenge for most Eastern European countries, even after twenty years from the accession to the European Union. While financial integration is viewed as an opportunity, there is an ongoing debate about its optimal form. Beyond meeting the Maastricht Criteria, which some countries comply, several critical issues arise: what is the most appropriate type of financial integration within the European Union and can the development of a Capital Markets Union and a Banking Union effectively address market fragmentation. Moreover, in the absence of suitable institutional frameworks, are these mechanisms able to overcome asymmetric shocks accommodate economic convergence and mitigate systemic risks? Euro Area needs tools like collective deposit insurance schemes (EDIS) and to increase the resources for the Single Resolution Fund (SRF) to address systemic risks more effectively. Economic convergence mechanisms are compulsory to reduce the divergence of NPLs across member states. The creation of European "safe assets," such as Sovereign Bond-Backed Securities (SBBS), seeks to mitigate the bank-sovereign doom loop.

ABSTRACT The Single Resolution Mechanism (SRM) was designed to create a common framework for the recovery and resolution of ailing banks headquartered in the euro area. The Single Resolution Fund (SRF) was created to be this mechanism’s financial backbone and to effectively break the doom loop between banks and governments. However, SRF funds were widely seen as insufficient in the event of the need to resolve one or more large banks. In early 2021, euro area member states agreed to changes to the European Stability Mechanism (ESM) so that it could become the financial backstop for the SRF. This paper analyses the existing and proposed arrangements on the SRF backstops, using elements of the principal–agent model. We argue that the proposed use of the ESM as the SRF’s backstop would allow euro area national governments significant control and veto possibilities through the addition of the ‘permanence of the legal framework’ clause.

The Single Resolution Mechanism (SRM), which has been in operation since 2016, is particularly complex. It is headed by a ‘specific’ agency, the Single Resolution Board (SRB), but national authorities as well as national legal frameworks continue to play a decisive role in its operation. The Meroni doctrine also sets limitations on the extent to which (discretionary) powers may be delegated to the SRB. For this reason, very complex mechanisms had to be devised to guarantee that the European Commission and the Council would be sufficiently involved. Also, the SRM only applies to Banking Union Member States (i.e., euro area Member States and states in close cooperation). The co-existence of the Internal Market/EU27 on the one hand and the Banking Union on the other is a further source of complexity, as is the fact that the SRM partially relies on international law (the Single Resolution Fund and perhaps the European Stability Mechanism in the future). In short, the complexities within the SRM are many, and this article sheds light on them by considering complexities of a procedural, institutional and legal nature. It concludes by demonstrating that complexity has increased over time, yet it is probably unavoidable at this stage of European integration. However, efforts could still be made to simplify the applicable legal framework.

This article provides an analysis of the judgment of the Grand Chamber of the Court of Justice (the Court) of 15 July 2021 delivered in Joined Cases C-584/20 P and C-621/20 P (Commission and SRB v Landesbank Baden-W??rttemberg), which offers valuable insights into the question of the scope of the obligation to state reasons. In particular, the judgment clarifies how that obligation should be weighed, if necessary, with the obligation to protect the confidential data within the EU decision-making process. While the judgment specifically pertains to a decision of the Single Resolution Board regarding the calculation of ex-ante contributions to the Single Resolution Fund, its implications extend to all areas of EU law where the EU administration relies on confidential information in order to adopt a decision. Additionally, the judgment holds particular significance for the National Resolution Authorities of the Member States non-participating in the Banking Union, since they are required to calculate ex‐ante contributions to their national resolution financing arrangement and must, for this purpose, rely on the methodology provided by the EU legislator, as interpreted by the Court. Finally, the authors argue that regardless of its significance, the judgment leaves several questions unanswered regarding the adequacy of the reasoning of an administrative decision based on confidential data.

We investigate whether the bank crisis management framework of the European banking union can effectively bar the detrimental influence of national interests in cross-border bank failures. We find that both the internal governance structure and decision-making procedure of the Single Resolution Board (SRB) and the interplay between the SRB and national resolution authorities in the implementation of supranationally devised resolution schemes provide inroads that allow opposing national interests to obstruct supranational resolution. The amendments to the framework recently proposed by the European Commission would not alter the assessment materially. We also show that the Single Resolution Fund (SRF), even after the ratification of the reform of the European Stability Mechanism (ESM) and the introduction of the SRF backstop facility, is inapt to overcome these frictions. We propose a full supranationalization of resolution decision-making. This would allow European authorities in charge of bank crisis management to operate autonomously and achieve socially optimal outcomes beyond national borders.

A speciality of contracts seems to be the small print - also in contracts between the members of the European Union. The European Stability Mechanism Treaty (ESM), concluded with the purpose to install the ESM as an international financial institution and as backstop for the Single Resolution Fund (SRF), contains in one of its articles the inconspicuous reference to a mandatory majority action clause. This clause will be modified together with the prepared amendment of the ESM treaty. This amendment offers the perfect opportunity to describe Collective Action Clauses like majority action clauses - facilitating the restructuring of debt - in general and in particular those for sovereign debt of the Euro countries including their effects on the creditors position taking into account the role of the ECB as major creditor.

Abstract The crisis management and deposit insurance (CMDI) framework in the euro area requires a reset. This article explains why and proposes a new framework. This could start as early as 1 January 2024 when significant institutions in the euro area will have met requirements to have enough subordinated obligations outstanding to recapitalize the bank if it were to fail. The proposed framework has four components: a single lender of last resort (the European Central Bank); a single presumptive path for resolution (exit via the use of bail-in to facilitate orderly liquidation of the failed bank by the Single Resolution Board under a solvent wind-down strategy); an investor of last resort in a bank’s gone-concern capital (its national deposit guarantee scheme); and a Single Deposit Guarantee Scheme (the Single Resolution Fund with a backstop from the European Stability Mechanism). Together, these measures would limit forbearance, assure bail-in did not touch deposits, promote competition, limit recourse to taxpayer money, standardize resolution procedures for all banks, complete Banking Union and guarantee that a euro of covered deposits would remain a euro, all without forcing national deposit guarantee schemes to reinsure one another. Last but not least the proposed framework would promote financial stability.

This study visualizes different positions of Germany and the counter-coalition of the EU members in the process of financial integration. The European Union, established by the Maastricht Treaty in 1993, has achieved an economic and monetary union (EMU), but has experienced the eurozone crisis due to lack of fiscal and financial integrations into its internal market. To deal with the instability of its economic system caused by the incomplete internal market, the EU members have pursued a banking union (BU) and a capital market union (CMU). The banking union has already established two of the three pillars, the single supervisory mechanism (SSM), and the single resolution mechanism (SRM). The third pillar, the European deposit insurance scheme (EDIS), is under way. Efforts to make CMU operational are also being discussed. Germany has assumed a critical role in the process of EU’s financial integration with some different views from the counter-Germany coalition. Germany has emphasized the importance of a network of the sovereign funds for banks resolution while the counter-coalition members favor the single resolution fund. Other members prefer discretion in SRM but Germany is for rules. And Germany desires to give the Council the decision-making power, however the counter-coalition members want to give the Commission the power. All these differences come from Germany’s emphasis on the Freiburg School’s economic principles of ordoliberalism, which view liability principle (Haftungsprinzip) very crucial for a competitive market economy.

We evaluated the effects of the bank levy (BL) on the profitability of commercial banks and the balance sheet reconstruction, and the shifting of banks’ activities into countries with lower BL rates after BL introduction. Moreover, we investigated the effects of the Basel III and Single Resolution Fund (SRF) introduction on the amount of BL payment. We compared two different BL designs: the Hungarian and the German versions. The results clearly pointed to the negative effect of BL introduction on the ROA of larger Hungarian commercial banks and of smaller commercial banks in Germany. Moreover, the results showed that the introduction of the BL did not influence loan activity in Hungary. However, it decreased the value of the loans from German commercial banks. The results showed that commercial banks in Hungary prefer to restructure their balance or shift assets among different locations or entities to decrease the bank levy. The research findings also showed that Hungarian commercial banks decreased the value of paid BL after the Basel III introduction. On the other hand, the results also showed that the value of paid BL in German commercial banks increased after the Basel III and SRF introduction, especially in larger banks.

Considerations on the application of the NCWO principle under the SRM Regulation

Reset Required: The Euro Area Crisis Management and Deposit Insurance Framework

The European Stability Mechanism (ESM) has been instrumental in safeguarding the financial stability of the Euro area and of its Member States. This article looks at the tumultuous process of reforming the ESM. It analyses the main changes that would be brought about by the draft revised ESM Treaty, whose text was agreed upon in June 2019 and finalized in December 2020. These concern the ESM’s purposes and operations; the procedure for granting stability support to a Euro area Member State; precautionary financial assistance instruments; single-limb collective action clauses; and the common backstop to the Single Resolution Fund. The focus then shifts to the changes agreed upon in response to the COVID-19 crisis. A new credit line has been introduced, the Pandemic Crisis Support, which builds on an existing instrument. It is argued that the reforms posited in the draft revised ESM Treaty would plug important gaps in the framework of the Economic and Monetary Union. Nevertheless, some of the ESM’s underlying vulnerabilities would remain, notably as regards its governance, the status of non-Euro area Member States, and the framework for its transparency and accountability. A more comprehensive reform could have taken place, which would have improved upon the overall structure of the Euro area. European Stability Mechanism, ESM Treaty, ESM reform, Pandemic Crisis Support, European Monetary Fund, economic governance, accountability

Public International Law as a Means to Empower EU Bodies: The Case of the Single Resolution Board (SRB)

European Deposit Insurance System (EDIS): Cornerstone of the Banking Union or Dead End?

This article seeks to explain the main aspects of the reform of the European Stability Mechanism, as agreed in principle by the leaders of the euro area member states. The article focuses particularly on the ESM’s new mandate to act as the common backstop to the Single Resolution Fund, the reform of its precautionary lending instrument, the expansion of its role in country monitoring both in and outside of programmes, and the future treatment of debt sustainability issues, including the adoption of a revised euro area model collective action clause. By shedding light on the nature and context of these developments, the authors hope to dispel some misunderstandings about the content of this reform and contribute to a clearer understanding of what is at stake.

ABSTRACT It is common to consider mass politics and Eurosceptic politicization as ‘post-functionalist’ constraints that encourage differentiated European integration. This study argues that the relevance of Euroscepticism depends on who wins the domestic competition for government office. European mass politics are organized as delegation systems. These systems concentrate authority in the government and give little influence to parliaments and publics. If Eurosceptic parties reach the government, they will push for differentiation and even disintegration. If pro-EU parties succeed, uniform integration is likely to prevail. An empirical analysis of differentiated integration from the 1992 Maastricht Treaty to the 2016 Single Resolution Fund shows that only government Euroscepticism – rather than opposition, extra-parliamentary, or popular Euroscepticism – encourages differentiation. This study explains how uniform integration can prevail even in ostensibly Eurosceptic countries. It suggests that the impact of Eurosceptic politicization depends on party competition and is often more limited than might seem at first sight.

Exploring Governance Issues between the SRB and the ESM in the Use of the Common Backstop

The Reform of the European Stability Mechanism: Process, Substance, and the Pandemic

Plug the Gap: Make Resolution Ready for Corona