The ECJ said this week the bail-in of investors in five Slovenian banks in 2013 was legal. The European Commission has the right and duty to review "extraordinary" situations that might legitimise its approval of public bail-outs even if the criteria in its Banking Communication for state aid aren’t met.
But the ruling also says that the communication isn’t binding. States can just go ahead and throw public money at ailing banks. They then run the risk of the commission later judging that they’ve fallen afoul of the rule, but it’s unclear what happens afterwards.
However, the Bank Recovery and Resolution Directive is also law. Had the court struck down the constitutionality of the Banking Communication, would Italy be able to start bailing out its banks? Probably not.
But this should give Italy, and others, a little more political leverage to structure a deal that falls outside BRRD.
Advocate General Wahl, who recommended the court rule in favour of states' ability to use public funds, has already reiterated his opinion in a case involving Permanent TSB's takeover in 2011. He said a state should be able to give aid to banks that are "central to the backbone of its economy, failing which that economy might be severely harmed and might, in turn, cause risk to that of other member states”.
And with European Central Bank president Mario Draghi today saying that use of public funds may well be part of the solution to Europe’s bad loans problem, it seems there is some institutional momentum to look beyond the politics of post-crisis rulemaking and begin addressing Europe’s most pressing hurdle to growth.