Reform of the eurozone bailout fund will remain frozen until at least March, a senior official said on Wednesday (15 January), as governments are still divided over technical details on bond restructuring.
The reform, which would allow the European Stability Mechanism (ESM) to play a role in future rescues of failing banks, was to be adopted last December but last-minute objections from Italy forced a delay.
Back then, the head of the Eurogroup of euro zone finance ministers, Mario Centeno, said that an agreement was possible in January, after acknowledging more time was needed.
But now that has been pushed back.
“We need to do some technical work. We will have a solution in March,” the senior eurozone official said, ruling out a deal at next week’s monthly meeting of euro zone finance ministers.
Centeno had also said the deadline for signing off on the deal, after an earlier political agreement, was March. That schedule could still be met if ministers find a compromise by then.
Among the changes included in the ESM reform are clauses intended to reduce the risk of investors holding out in a sovereign debt restructuring.
Highly indebted Italy blocked the adoption of the reform in December, out of fears the new collective action clauses could make debt restructuring more likely – and consequently raise debt servicing costs.
The objections were raised despite a preliminary deal reached by eurozone finance ministers on the matter in June.
The eurozone official was confident of a compromise in March and said the legal nature of those clauses remained the only open issue about the whole ESM reform.
The reform, which would also need to be ratified by national parliaments, would strengthen the bloc’s financial buffers.
It would also give a boost to the morale of a union which has been incapable of passing crucial economic reforms over the last years because of deep divisions among member states.