EU Summit: The most important game next week? – Nordea Markets

The EU/Euro-area summit of June 28-29 would be  the  time to settle the transfer of all major banking sector issues from the national to the European level, according to analysts at Nordea Markets.

Key Quotes

“As time started ticking down to the meeting, the diversity of opinions has become apparent and the likelihood of the summit resulting in any noticeable reforms has declined. In addition, other topics such as migration are likely to dominate the discussion, taking away the attention on economic issues.”

“A draw between the “Risk Sharing” and “Risk Reduction” teams?

Our main scenario for next week’s summit game is a draw between the two teams, with a few “minor” scores for each.

“Risk Sharing” goals: The European Stability Mechanism (ESM) will be reformed to function as a permanent back-stop to the Single Resolution Fund (SRF) for the Euro-area banking sector, instead of with national governments.

The immediate significance of this decision would be miniscule not least because so far, the SRF has not been used even once. The “Risk Sharing” team will likely not get any clear victory on the European Deposit Scheme.

Assessing the wins for the “Risk Reducers” is always tricky as they often manage to turn a result that seems like a loss into a win after the game is finished.

While the “Risk Sharers” might win more funding to an investment budget for the Euro area, or even a stabilisation tool, the “Risk Reducers” will make sure that the size of such a budget will almost inevitably disappoint the judge.

The “Risk Reducers” will also ensure that the recent discussion around Italian economic policy will eliminate any expectations regarding e.g. reforms which would increase common elements in public debt.

We believe the “Risk Reducers” best chance of a goal is soft targets for how much bank NPLs will have to be reduced before they agree to the next game of the “Completing the Banking Union” championship.”