EU Member States discussed short, medium and long-term stability measures
(Translation. Original Finnish released on 29 June 2012.)
The EU Heads of State or Government convened in Brussels on 28-29 June. At the Eurogroup Summit, they agreed on short-term measures to alleviate the economic crisis. At the European Council meeting, the EU leaders discussed action to stabilise the EU's economy in the medium and long term.
The Eurogroup Summit held an in-depth debate on short-term measures to manage the financial crisis. The summit agreed on taking urgent steps to strengthen banking supervision at European level. A banking supervisory mechanism for the euro area banks is to be established by the end of 2012. The agreement on banking supervision was one of the major achievements of the summit. When such a mechanism is established, the possibility to recapitalize banks directly through the European Stability Mechanism (EMS) could be considered alongside financial assistance to Member States.
The ESM's preferred creditor status was not changed; the principle of seniority will remain in this permanent rescue funding programme which is to enter into force in July. Financial assistance provided by the temporary European Financial Stability Facility (EFSF) will be transferred to the ESM without gaining seniority status. However, new financial assistance provided from the ESM will have preferred creditor status, i.e. bailout countries will repay ESM loans before their other obligations.
"The ESM's preferred creditor status was important to Finland and the agreement achieved is in line with our views", Prime Minister Katainen said.
The EU Heads of State or Government exchanged views on the financial situation of Ireland and agreed to review the sustainability of the adjustment programme. However, no commitments were made to implement any changes yet. The meeting decided to provide financial assistance to Spain first by the EFSF. Finland demanded guarantees on its own funding.
The meeting also discussed to possibility that the ESM could acquire national bonds from the secondary market, but it didn't reach consensus on the issue. Finland was among the Members States to oppose bond buying from the secondary market. As agreed earlier, the European Central Bank will be able to serve as an agent to EFSF and ESM in conducting market operations.
The European Council reached agreement, in the context of medium-term action, on the Compact for Growth and Jobs. Through the Compact, the Member States commit themselves to take growth-enhancing measures relating to, for example, deepening the single market, better implementation of related legislation, and creation of the digital single market by 2015. As part of the Compact, further growth-enhancing investments were agreed on, for example, by increasing the paid-in capital of the European Investment Bank.
As far as the long-term measures are concerned, the European Council discussed President Herman Van Rompuy's report on development of the Economic and Monetary Union. As required by Finland, among others, all Member States will be closely associated to the reflections on the development of the EMU. The proposal on further steps to strengthen the EMU is to be presented before the year-end.
Prior to the meeting, Finland proposed the idea that vulnerable Member States could issue covered bonds to access markets with lower interest rates. Covered bonds were successfully used in Finland during the recession in the 1990s when the country's loan repayment ability was questioned.
"The idea of covered bonds received wide support. Although the proposal was not adopted, it came as a counterpoint to the demands of Italy and Spain and served as an opening for the formulation of the future of the euro area", Prime Minister Katainen said.
Inquiries: Juho Romakkaniemi, Special Adviser (EU Affairs), tel. +358 9 1602 2055 or +358 400 505 269 and Kare Halonen, State Secretary, EU Affairs, tel. +358 9 1602 2180, Prime Ministers Office