Speech: Remarks by Vice-President Dombrovskis at the College Readout of 20 June

Good afternoon,

Let me start with the College readout. This morning we had a number of important issues in the context of the upcoming European Council. We discussed the Stability Support programme for Greece ahead of the Eurogroup meeting on 21st of June and the conclusion of the programme in August this year. We also discussed the state of play of the proposals on the Economic and Monetary Union ahead of the European Council next week. So we will go into more details on these topics in a minute.

Our Chief negotiator for Article 50 negotiations with the UK, Michel Barnier, also attended the College this morning and he gave us an overview of the latest developments in the negotiations in the context of the round of talks currently ongoing. This also included a joint statement that was published yesterday evening outlining the progress that has been achieved on the terms of the draft withdrawal agreement since the negotiation round on 16-19 March of this year.

The First Vice-President Timmermans debriefed the College on the latest state of play on the Rule of Law dialogue with Poland following his visit to Warsaw this week. The First Vice-President Timmermans met with the Polish Prime Minister Mateusz Morawiecki i on Monday with whom he had a constructive discussion in a view of finding satisfactory solutions to the Commission's recommendations for Poland. While a number of measures had been taken by the Polish authorities in the past months, they are not sufficient to eliminate a clear risk of serious breach of the Rule of Law leaving key concerns of the European Commission unaddressed. So the next step is the hearing in the General Affairs Council on 26^th of June, where European Commission will reiterate its position as laid down in the proposal of December 2017.

And now let me move to the issues of the Economic and Monetary Union.

In light of the upcoming Eurogroup and the Euro area summit, the College took stock of the discussion on the deepening of the Economic and Monetary Union.

Let me say that I am cautiously optimistic, and the Franco-German proposals presented yesterday add to this optimism.

The job now is to build further consensus on these topics.

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First, on the Banking Union and the ESM. On completing the Banking Union, discussions are quite advanced. Our work is based on the Roadmap agreed by European Finance Ministers in 2016. On the risk reduction side, we are seeing tangible progress:

Our banks are now stronger and better capitalised.

The reduction of non-performing loans on bank balance sheets is accelerating.

The latest ECB data released yesterday shows that the EU NPL ratio is now below 4% for the first time since the crisis.

Our March legislative package to accelerate this trend and prevent new non-performing loans is well taken up by the co-legislators.

I welcome the commitment of France and Germany to make all efforts to adopt these NPL reduction proposals by the end of 2018.

Already in May, Ministers reached a deal on the 2016 banking package, which further reduces risks by implementing internationally agreed norms on capital buffers and liquidity in banks. And thanks to yesterday's vote on this in the European Parliament, we can now start trilogues quickly.

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When completing the Banking Union, risk reduction and risk sharing must go hand in hand.

I welcome Chancellor Merkel i and President Macron i's support for backstop to the Single Resolution Fund.

Given the broad political support for the backstop also among other euro area countries, we can expect a concrete decision this month.

This will make the second pillar of Banking Union - the Single Resolution Mechanism - even more credible, and thereby reduce the likelihood of a banking crisis.

According to the 2016 Roadmap agreement on the banking package paves the way for an early deal on the backstop.

So the Commission maintains its view that it should be available well before 2024.

The backstop should be provided by the European Stability Mechanism - the future European Monetary Fund.

It is essential that the backstop can operate within the tight deadlines for resolving banks over a weekend - or sometimes overnight - before markets open.

That is why - in our view - a credible backstop requires governance that is efficient and workable, while ensuring democratic accountability.

***

The second outstanding risk sharing element in the Banking Union is the European Deposit Insurance Scheme.

Constructive technical discussions are ongoing since some time and while this project may take longer than we had hoped for, our position is clear: EDIS was part of the agreed 2016 Roadmap to complete the Banking Union, and based on that it is time to start political discussions.

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To make full use of our financial markets to absorb shocks, we need to further integrate not only the banking sector but also our capital markets.

This is one of the main objectives for setting up a Capital Markets Union.

But there is a paradox of Capital Markets Union that I often underline: all parties seem to share this priority, but at the same time progress on the legislative proposals is insufficient.

So we welcome the commitment of leaders on making decisive progress on the Capital Markets Union.

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The last elements on which we are seeing constructive discussions are instruments for stabilisation, fostering convergence and promoting structural reforms.

It is precisely to support countries in their reform efforts that we proposed the Reform Support Programme, with a total budget of EUR 25bn over the 2021 - 2027 period.

There is also growing consensus around a solidarity tool for Member States that are hit by large asymmetric shocks, despite playing by our common rules.

That is especially the case within the euro area, where Member States cannot use exchange rates to adjust to those shocks.

At the same time, we see that there are still manifold possible designs and aims promoted.

The debate also shows how challenging it can be to properly design such instruments.

You want to give meaningful support for convergence and stabilisation, but resources are scarce.

You want to show solidarity without undermining sound policy incentives for Member States.

Our proposal for the European Investment Stabilisation Function covers these different aims.

The trigger for the stabilisation support would be based on the evolution of unemployment.

The support would be in the form of concessional loans, avoiding any permanent transfers.

It would also support investment in innovation and human capital.

I believe that the Commission's proposals on the Reform Support Programme and the European Investment Stabilisation Function can show a pragmatic way forward on this.

I am very much looking forward to discussions in Eurogroup and ECOFIN.

***

To conclude, a couple of words on Greece, which I visited last week.

The authorities are working hard for the successful conclusion of the stability programme.

Every effort is taken to ensure an overall agreement in Eurogroup this Thursday.

For that we need:

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  A successful completion of the 4th review;
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  A fair agreement on debt measures. Upfront measures would be important to ensure Greece's gradual return to markets. I also think we need a substantial amount of the last disbursement to ensure Greece has solid capital buffers.
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  And finally, an agreement on the post programme framework.

The end of the stability programme is just a new beginning.

What really matters is that Greece stays on track with deep structural reforms to strengthen its institutions and economy.

And what will matter for the confidence of markets and investors is that Greece continues to conduct responsible fiscal policies.

We stand ready to continue supporting Greece in its efforts.

Thank you very much.

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