Germany seeks role for ESM in future crises

Germany’s Bundesbank has proposed reforms to streamline Europe’s response to future fiscal crises.

The bank suggests turning the European Stability Mechanism (ESM) into the region’s leading fiscal authority with competences encompassing those currently carried out by the European Commission and the European Central Bank. 

It also wants a change in the terms of new government debt issues to allow easier restructuring and a maturity extension should the country enter an aid programme.

With consensus lacking for a fiscal and political European union, the region’s economic framework must be strengthened within existing treaties, the Bundesbank said in its monthly bulletin yesterday. 

“Further reforms should aim at anchoring a stability-oriented fiscal policy in member states, limiting systemic contagion effects as much as possible and strengthening financial stability overall.”

The Frankfurt-based central bank suggested that the ESM, whose competences are currently largely limited to issuing debt to finance loans to eurozone member states, could take the lead in assessing economic prospects, debt sustainability and financial needs of a country asking for a bailout. 

Those tasks have so far rested with the so-called troika of European Commission, ECB, and International Monetary Fund.

The ESM would also oversee any aid programme and negotiate between the government and creditors if a restructuring is unavoidable.

The Bundesbank also suggested terms for newly issued bonds that would automatically extend their maturities for the duration of an assistance programme without triggering a credit event. 

The ESM’s firepower would be increased and bailout programmes could be smaller in size.


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