The ECB's Annual Report for 2010 was published yesterday, and is available here. It was presented to the European Parliament's Economic and Monetary Affairs Committee (ECON) yesterday by ECB Vice President Vítor Constâncio. You can read his remarks here and view a webcast of the presentation and the subsequent Q&A session here.

The Q&A session raised a number of interesting points, which highlighted the ECB's orthodoxy when it comes to implementation of the IMF/EU 'troika' agreements with Greece, Ireland and (under negotiation) Portugal. In response to a question from MEP Sven Giegold (G-EFA/DE) on how the ECB offsets the risk of its sovereign bond purchases and the lower collateral standards that it has been accepting, Vítor Constâncio said that the ECB's capital was doubled in 2010 and its general provisions increased to more than €5bn. However, Constâncio underlined that a strict adherence to reform measures negotiated with the ECB was a key condition of funding to countries under a rescue programme. In other words, debt restructuring remains anathema to the ECB. The possible restructuring of Greek debt had been raised by deputies Jean-Paul Gauzès (EPP/FR) and Anni Podimata (S&D/EL).

The ECB Vice-President went on to raise an interesting concept in response to a question from deputy Kay Swinburne (ECR/UK) on the future establishment of national resolution funds. The European Commission published in May last year a Communication on so-called 'special resolution regimes' (SRRs) that would act as emergency frameworks to provide for orderly bankruptcy, restructuring or sale of so-called 'systemically important' financial institutions. Each Member State would be required to adopt its own SRR (the UK has already installed sucha regime and Ireland is required to adopt one as part of its IMF/EU reform programme, although it will not become operable until 2013). Constâncio told the Committee that the 'network' of national resolution funds could evolve into a European resolution fund which could help burden sharing in the future. While this idea certainly makes sense from a purely logistical perspective given the Paulson-esque 'bazooka' of funds that would be required in the case of a bankruptcy of a systemically important financial institution, it raises the question as to how this "network" would be squared with the no bailout clause in Article 125 of the Lisbon Treaty? Or, to put it in political terms, how happy would the German government be to provide funds from its SRR for the restructuring of an Irish bank, given the rising opposition in the Bundestag to doing so via the EFSF?

 

The European Parliament will name a rapporteur for the Annual Report on 10 May and provide its response thereafter.

 

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