Scholz Plan Gets Mixed Welcome From Two Key Euro-Area Governors

(Bloomberg) --

German Finance Minister Olaf Scholz’s proposal to break the deadlock over European banking integration has received a cautious welcome from central bank governors in the euro’s two next most-important economies.

On Friday, Bank of Italy Governor Ignazio Visco appeared less hostile to the plan than his country’s finance minister, saying “it shows willingness to keep the dialog open” even if it fails to address key issues. That followed remarks on Thursday by his French counterpart, Francois Villeroy de Galhau, who described it as “a useful basis for compromise.”

Scholz suggested last week that Germany may consider cooperation on guaranteeing deposits, an offer that came with a list of demands aimed at reducing risks in the European banking sector. While Italian Finance Minister Roberto Gualtieri reacted that those conditions wouldn’t be appropriate, Scholz insisted on Thursday that a deal in principle could be possible by December.

The governors’ views in the major economies are instructive on the evolving dialog because of their proximity to banking system via their central banks.

Visco focused his critique about the proposal on the lack of an accompanying initiative to create a so-called safe asset in the euro area. Villeroy, the Bank of France governor, said that the debate was too focused on deposit insurance alone, though his reaction was warm.

“I would like to applaud the open approach of the federal minister of finance,” he said. “The Scholz proposals are putting back in motion this key issue for the solidity of the euro area and the smooth financing of investment.”

©2019 Bloomberg L.P.

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