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Vice-President of the European Commission and member of the Commission responsible for Economic and Monetary Affairs and the Euro
Remarks by Vice-President Olli Rehn at Eurogroup press conference
20 June, 2013
Thank you Jeroen.
I start by congratulating Latvia for the Eurogroup's endorsement of the Commission's and the ECB's convergence reports. This paves the way for Latvia to join the euro area on 1st January 2014. I want to welcome Latvia as it has deserved this by doing an impressive economic turnaround over the last couple of years and achieved sustainable economic convergence with the euro area. I would like to make three brief points.
First, on the banking union, we have made very good progress over the past 12 months on different elements of the banking union and it is essential to maintain the momentum. Today, the Eurogroup has, indeed, maintained the momentum. I am pleased that serious progress was made this evening on the rules for direct bank recapitalisation. We have, in fact, taken another step closer to fulfilling the commitment made by the Euro Area Summit one year ago, end of June 2012 – to break the vicious circle between banks and sovereigns.
On this point, I have seen in the press today and in a blog some days earlier that some attention has been paid to my choice of verbs when speaking about this. So let me be very clear: we want to break the vicious circle between banks and sovereigns, and to do this by diluting the link between them.
In this context, another important task lies before the ECOFIN Council tomorrow, which is to reach an agreement on the Bank Recovery and Resolution Directive so as to pave the way for discussions on this to be taken forward swiftly with the European Parliament.
It is, in fact, hard to overestimate the importance of these steps and of the wider efforts to complete the clean-up of our banking system in Europe for the sake of the real economy in Europe. These efforts will be taken forward in the coming 6-12 months with the asset quality, or balance sheet review, and the stress tests that will precede the launch of the Single Supervisory Mechanism. On this point, it should be recalled that a strong fiscal backstop for financial institutions in the eurozone is already there today. We have a combination of national fiscal backstops and we have the European Stability Mechanism, which has already been effectively used for this purpose in Spain.
We must remove the uncertainty that has been hanging over the banking system in Europe for too long, to reinforce confidence and get credit flowing to where it is needed for the sake of sustainable growth and job creation.
Affordable credit is needed, first and foremost, by Europe’s SMEs, especially those in southern Europe. This brings me to my second point. The Commission has been working intensively with the European Investment Bank to find ways and means to address the financing trap in which too many of Europe’s small businesses find themselves today, and which is holding back investment and job creation. We have prepared a joint report for the European Council of next week setting out concrete options for restoring normal lending to the real economy, and creating an incentive for private sector lending to SMEs. We will make the report pubic tomorrow after the ECOFIN discussions. This initiative has the potential to leverage up to €100 billion euros in funding for SMEs, which will depend on a number of factors, not least the option selected, the scale of participation by Member States and the response of the markets. I can only call for a very high level of ambition by the EU Member States in order to support this very important SME funding and lending initiative.
Third and finally, tomorrow morning I expect another important step will be taken in support of Ireland and Portugal with the formal adoption of the decision to extend the maturities of these two countries’ EFSM and EFSF loans by a further seven years on average. This extension will make a real difference by further enhancing both countries’ prospects for a sustainable return to market financing as they exit their programmes this autumn, in the case of Ireland, and next spring in the case of Portugal.
I want to underline that a successful exit from EU-IMF programme of economic reform and adjustment will benefit not only Ireland and Portugal, but the entire euro area. In the coming review missions, we will take forward the discussions on how best to further support this transition, provided of course that both countries continue with steadfast and determined implementation of the agreed reform programmes.