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Reuters has reported that the Eurozone finance ministers have agreed to use their bailout fund, the European Stability Mechanism (ESM), as an emergency backstop for the single currency area’s bank resolution fund. This was according to the German Finance Minister Olaf Scholz.

”The agreement, stalled since last year, will make the eurozone more stable and resilient to future crises”, Scholz said.

“There are decisions, especially at the EU level, that sound so technical that it is difficult to recognise 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 ESM reform 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 stabilising factor for the euro which has been propelled higher on dollar weakness and despite the concerns over 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, the details of which will be announced next week when the ECB meets (10 December),” analysts at ANZ Bank explained.