外文报告：HSBC-EU summit：First steps to banking union-120629

Economics
29 June 2012
Janet Henry | +442079916711 | JANET.HENRY@http://wendang.chazidian.com
View HSBC Global Research at:http://wendang.chazidian.com
Issuer of report: HSBC Bank plc
EU summit:
First steps to banking union
Expectations were low, but with some plans that could help to rein in spiralling Spanish and Italian debt costs, and
its initial moves towards establishing a eurozone banking union, this EU summit may turn out to be one of the more
important ones of recent years. Much detail remains to be fleshed out, deadlines are absent and much of what needs to
be done will take years but at least the market rally lasted more than a couple of hours, which is more than it did after
the Spanish bank bailout and Greek election results were announced.
The main achievement of the two-day European Council meeting was the commitment to a single eurozone banking sector
supervisory authority and an intention to put it in place as quickly as possible so that the new European Stability Mechanism
(ESM) will not have to assume seniority when it helps to recapitalise banks. This is the accelerated part of the banking sector
union that is part one of President Herman Van Rompuy's long-term roadmap for completing economic and monetary union.
Otherwise the meeting was largely as expected with a EUR120bn growth plan (see note published earlier today), which will
hopefully be enough to get France on board with the fiscal compact.
Helped by the low expectations going into this summit, the initial market reaction has been positive and the first step towards
setting out a vision for genuine integration is to be welcomed. For the past two years we have argued that the European-wide
mechanism for dealing with banking sector issues (such as through forced recapitalisations if necessary) is critical to solving to
the crisis. But we are not yet even at the detailed proposal stage for the banking supervisory mechanism and getting countries
to relinquish sovereignty over their banks will not be an easy path. Questions will also no doubt soon follow about whether the
ESM of EUR500bn will actually big enough for its potentially larger role.
More immediately, the next ten days alone are scheduled to see the Troika return to Greece (July 2), the ECB to meet to set
policy (July 5) and the Eurogroup to discuss the recapitalisation plans for the Spanish banking sector (July 9) so there will still
be plenty of newsflow to bombard the market.
BANKING UNION WILL HELP SPAIN AND IRELAND
As is typically the case with eurozone commitments made at this type of summit, a single eurozone banking sector supervisory
authority (the ECB) is not the kind of mechanism that can be put in place overnight, not least because they haven't yet decided
how it will work. The Commission will present proposals for a single supervisory mechanism "shortly" and will ask the
European Council to consider the proposals as a matter of urgency by the end of 2012. Only once it is in place will the new
ESM not have to assume seniority when it helps to recapitalise banks. So for Spain the discussions will still proceed on the
Memorandum of Understanding for the bank recapitalisation assistance at the July 9 meeting of the Eurogroup and the funding
will initially be provided by the EFSF, presumably in the form of a loan to the Spanish government. Hence it will add to the
government's debt burden but at least the EFSF loans are not senior. Once the supervisory mechanism is in place, the EFSF
loan can be transferred to the ESM without seniority. The suggestion is that it would become a direct recapitalisation not
channelled through the government but the wording of the statement is full of qualifications: nothing is set in stone and all
measures are only possible under "certain circumstances" and "certain conditions". The Irish programme is also due to be
re-examined with a view to improving the sustainability of the adjustment programme further. As long as the plan proceeds
quickly, it could ce rtainly help the Irish government return to the bond market when its current programme ends which
explains why Irish yields fell more than Spanish or Italian ones in response to the announcement.
anonymous@http://wendang.chazidian.com FIRST LAST 07/02/12 06:24:34 AM Hong Kong Highpower