Reuters has reported that eurozone finance ministers have agreed to use its bailout fund, the European Stability Mechanism (ESM), as an emergency backup to the single currency area’s bank resolution fund. This was according to German Finance Minister Olaf Scholz.
“The deal, stalled since last year, will make the eurozone more stable and resistant to future crises,” Scholz said.
“There are decisions, especially at the EU level, that sound so technical that it is difficult to recognize their political impact at first glance,” Scholz explained.
“Today’s agreement on the reform of the European rescue fund ESM is such a decision: the reform of the ESM strengthens the euro and the entire European banking sector. Because we are making the eurozone even more robust against attacks from speculators, “he said.
Market implications
This is a stabilizing factor for the euro, which has been driven up by the weakness of the dollar and despite concerns about the deflationary consequences of the economic crisis, reinforced by the recent wave of lockdowns.
“The challenges facing the ECB are enormous and a comprehensive recalibration of unconventional policy tools is warranted, details of which will be announced next week when the ECB meets (10 December),” explained analysts at ANZ Bank.
