Reported changes to plans for a eurozone-wide deposit scheme may win favor from Germany and other opponents, but they are not guaranteed to clinch support for the measures' eventual implementation, bank experts say.
First proposed in November 2015, the European Deposit Insurance Scheme, or EDIS, is the so-called third pillar of the eurozone banking union, alongside ECB oversight of the bloc's biggest lenders and a single mechanism for resolving failing banks. As conceived, the EDIS would be implemented over three phases through 2024 and eventually replace the national schemes that provide the €100,000 of deposit protection guaranteed to bank customers across the EU.
In the first phase, slated to run through 2020, the EDIS would act as a "reinsurer" of national-level schemes by stepping in with extra cash if a fund's reserves were depleted. Beginning in 2020, the EDIS would move to a "co-insurance" approach in which it would pay out from the beginning, taking on a progressively increasing share of the burden until reaching full coverage in 2024.
But Germany and other northern European countries have been opposed to the plan from the beginning, expressing fears that their savers' cash might go toward bailing out depositors of failed banks elsewhere in the eurozone. And in a bid to overcome that opposition, the European Commission is now reportedly poised to make sweeping revisions to its plans.
These include abandoning the last stage of the EDIS implementation completely and maintaining the co-insurance approach, rather than building up a common deposit insurance fund, according to several Oct. 5 media reports, which cited an EC draft proposal.
Valdis Dombrovskis, the European Commission vice president for the euro and for financial stability, financial services and capital markets union, said at a Single Resolution Board conference Sept. 29 that completing the project was vital, and he hinted about an upcoming discussion on the matter in the week starting Oct. 9.
Giving more weight to national guarantee schemes is a "nice approach" that Germany is likely to be happy with, Claire McNicol, a bank credit analyst from Rabobank Research, said in an interview. This would mean that reserves are built up on a national level and ensure that German money is used to protect only German depositors, she added.
Esther de Lange, a Dutch member of the European Parliament, proposed a similar approach in a December 2016 draft report, suggesting that giving national deposit insurance schemes more weight would help ease opposition to the EDIS, Rabobank credit analysts said in a note Oct. 5.
"I think the direction of the wind is definitely blowing in favor of a national deposit scheme," McNicol said. "Probably with some rules that they have to adhere to that are going to be set an a European level, i.e. they would have to hold at least X amount and that would be based on the number of depositors and size of deposits in their home country and the like."
Schäuble out, but German skepticism remains
The EC's new attempt to break the deadlock comes as one of the chief opponents of the EDIS, German Finance Minister Wolfgang Schäuble, prepares to step down. But even with Schäuble departing, German opposition is likely to remain high, said Hans-Peter Burghof, a professor and head of the economics and financial services department of Hohenheim University in Stuttgart.
German Finance Minister Wolfgang Schäuble speaks with, from right, Pierre Moscovici, the European commissioner for economic and financial affairs; Italian Finance Minister Pier Carlo Padoan; Spanish Economy Minister Luis de Guindos; and Jeroen Dijsselbloem, Dutch finance minister and head of the Eurogroup of eurozone finance ministers. Schäuble was attending his final Eurogroup meeting Oct. 9 in Luxembourg.
Coalition negotiations have yet to begin after the Sept. 24 German general election, but the liberal Free Democratic Party appears poised to take a place in the new government and provide the new finance minister. The FDP has a euroskeptic wing that opposes all EU initiatives, including the EDIS, and also doubts the concept of the Eurogroup of eurozone finance ministers, Burghof noted.
Moreover, they do not trust ECB President Mario Draghi and believe that "with all the influence and all the power he gained in the last years, he tries to [build up] Europe as a big Ponzi scheme and the European deposit insurance would be another element of this Ponzi scheme," Burghof said.
"It's good that [the EC] have become sensible and are ready to discuss new ideas, but the distrust is tremendous," Burghof said.
Lacking convergence, harmonization
The EC is also poised to maintain the EDIS as a reinsurance scheme until banks in weaker countries such as Italy and Greece completely cleanse their balance sheets of nonperforming loans, according to Reuters.
A gradual introduction, with suitably long transition periods, should be viewed as a step in the right direction, said Christian Stiefmueller, senior bank policy analyst at Finance Watch, a European nongovernmental organization that conducts research and advocacy on financial regulation.
"We would also see it as a way of encouraging member states to speed up the restructuring of their banking sectors and resolve existing systemic vulnerabilities," he said in an emailed statement.
He added that Finance Watch supports the notion of providing the same level of protection for depositors across the EU, but that efforts to that end require other tenets of the banking union to be finalized as well.
The EDIS, he said, "is a risk-sharing mechanism that presupposes an already quite advanced degree of convergence, in terms of banking sector stability, and harmonization, in terms of regulatory practice.
"There is ample evidence that we may still have some way to go, on both counts: Banks' NPLs are still worryingly high and concentrated in some member states and progress in dealing with weak institutions is quite uneven."