The German Audit Office sees substantial risks in the planned reform of the MES -ZDF

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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 the Bundestag parliament in Berlin, Germany, June 28, 2016. REUTERS / Fabrizio Bensch

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

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

This would lead to “a communitisation of banking risks at the level of public funds,” according to ZDF, citing the report, which means that the Court of Auditors fears 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 Court of Auditors did not immediately respond to a request for comment.

Reporting by Kirsti Knolle, editing by Angus MacSwan



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