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Eurogroup agrees the main features of a direct bank recapitalisation instrument and welcomes Latvia's progress towards joining the euro

21/06/2013 - News

After meticulous preparation, the Eurogroup has agreed upon the main features of the European Stability Mechanism's (ESM) direct bank recapitalisation instrument.

Olli Rehn, Vice President of the European Commission; Jeroen Dijsselbloem, President of the Eurogroup; Klaus Regling, Managing Director of the European Stability Mechanism


The President of the Eurogroup said:

“This instrument will help preserve the stability of the euro area and help remove the risk of contagion from the financial sector to the sovereign, thus weakening the vicious circle between banks and sovereigns as called for by the Euro Summit last year”.


The Eurogroup has agreed there will be strict eligibility criteria as well as a clear pecking order for the instrument.

  • An appropriate level of bail-in will be applied before the bank is recapitalised by the ESM in line with EU State aid rules, and applying of the forthcoming Bank Recovery and Resolution Directive (BRRD) as of the start of the supervision by the SSM.
  • A burden-sharing scheme will determine the contributions of the requesting Member State and the ESM in order to cater for the existence of legacy assets and to ensure that incentives remain aligned between the ESM and the requesting Member State.
  • €60bn will be the limit on the volume of possible direct bank recapitalisations.
  • Potential retroactive application of the instrument will have to be decided on a case-by-case basis and by mutual agreement. Possible cases will have to be discussed and assessed on their own merits once the instrument enters into force.


The instrument is to be finalised when the BRRD has been agreed with the European Parliament. Once this has happened and national parliamentary scrutiny procedures have been finalised and the Single Supervisory Mechanism is established and effective, the ESM Board of Governors will be able to add this instrument to their toolkit. 


The Eurogroup welcomed the convergence reports of the Commission and the European Central Bank (ECB) that concluded that Latvia fulfils the conditions required to adopt the euro. Latvia's Finance Minister, Andris Vilks, joined the Eurogroup's discussion and reiterated his government's long-term and unwavering commitment to the stability-orientated economic policies required of euro area members.


On the basis of the Commission and ECB reports the Eurogroup agreed that Latvia meets the necessary requirements to join the euro area on 1st January 2014. This will now be given due consideration by the Economic and Financial Affairs Council and subsequently the European Council. The European Parliament will also be consulted. 


In the words of the Eurogroup President “this is a major step in the right direction for Latvia and for the euro area.” 


The Eurogroup endorsed the Council recommendations to the euro area Member States made under the European Semester. The Eurogroup underlined the central role it should play in the strengthened surveillance framework applicable to euro area Member States and the importance of a growth-friendly and differentiated fiscal policy across the euro area. The Eurogroup will in autumn discuss the Commission opinions of the draft budgetary plans of euro area Member States and the budgetary situation and economic prospects of the euro area as a whole.


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