Euro zone better prepared for crisis, but could be even stronger: ESM

WASHINGTON: The euro zone is better prepared for a potential crisis now than 10 years ago, but there are some elements that are still missing before it can call itself truly crisis-proof, the head of the euro zone bailout fund ESM Klaus Regling said on Thursday.

Speaking at a Bruegel think-tank event on the sidelines of the International Monetary Fund annual meetings in Washington, Regling said the euro zone would be able to weather the next crisis thanks to a series of reforms over recent years.

Regling noted the 19 countries that share the euro now have the powerful bailout fund, a single bank supervisor for all euro zone banks and a single fund to resolve failing lenders. Many countries also implemented painful reforms reducing macro economic imbalances.

"The monetary union is now more stable and better prepared for the next crisis than a decade ago. But reform efforts continue, and rightly so," Regling said.

"However, I think there are still a few more necessary and meaningful steps to make the euro area permanently crisis-proof," he said.

He said the euro zone still needed a common European deposit insurance and a euro area budget - both of which are under consideration, but would take time to be agreed.

The European deposit insurance is the final stage of a banking union the EU wants to build to make the banking sector more resilient to shocks, as the single supervisor and resolution authorities already exist.

The scheme would mean that all bank deposits in the euro zone up to 100,000 euros would be guaranteed by the whole euro zone - a safety measure that would prevent any bank runs even in case of major bank troubles.

But before it can be introduced, euro zone governments want to resolve what they call legacy problems - bad loans that still exist in banks from the time of the sovereign debt crisis.

Another condition is to reduce the high proportion of domestic government bonds on bank balance sheets which create a doom loop of banks failing if sovereigns become insolvent.

The euro zone budget is now being discussed by the area's finance ministers and they are to present conclusions only in June, including how big it is going to be, where the financing would come from and what it would spend money on.

"Importantly, the budget could be designed to also counteract asymmetric shocks and help stabilise economies," Regling said.

"However, currently there is no consensus among member states that macroeconomic stabilisation and fiscal risk-sharing are desirable," he said.