German audit office sees substantial risks in planned MES -ZDF reform

FILE PHOTO: The flags of the European Union and the German nation are pictured ahead of a debate on the consequences of the Brexit vote at the lower house of parliament Bundestag in Berlin, Germany, June 28, 2016. REUTERS / Fabrizio Bensch

BERLIN (Reuters) – A planned reform of the eurozone bailout fund poses significant risks to the German state budget, its federal audit office said in a confidential report, ZDF reported on Sunday.

Eurozone finance ministers agreed in November to expand the responsibilities of the fund, known as the European Stability Mechanism (ESM), to strengthen the resilience of the common currency area, fearing the COVID-pandemic 19 increases the risk of future economic problems.

The changes will allow the ESM to lend to the eurozone bank resolution fund to liquidate failing banks if, in a banking crisis, the fund runs out of its own currency.

This would translate into “a commonality of banking risks at the level of public funds,” ZDF said, citing the report, which means the audit office is concerned that the state will have to pay in the event of a banking crisis.

The German parliament’s budget committee will hear MES chief Klaus Regling Elke Koenig, who chairs the resolution fund, and German central bank vice-president Claudia Buch at a public hearing on Monday.

The audit office did not immediately respond to a request for comment.

Reporting by Kirsti Knolle, editing by Angus MacSwan

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