Banking union proposals tabled by the Commission on Wednesday (12 September) are top of the agenda at the informal meeting in the Cypriot capital, as countries adopt preliminary stances on the controversial paper.
The Commission wants the European Central Bank (ECB) installed as a new super-regulator by January next year.
But the European Council must agree unanimously on the proposal, and a regulation transferring powers from the European Banking Authority (EBA) must also be agreed with the European Parliament.
Potential flashpoints include the number of banks to be covered by the proposal, the rights of non-eurozone countries which opt into the supervisory mechanism and the relative power of the EBA if disputes arise with the ECB.
Germany: effective supervision comes first
Sources close to the German finance minister, Wolfgang Schäuble, told EurActiv that there is no question of funds such as the the European Stability Mechanism (ESM) being allowed to intervene directly to help weak banks until supervision had become “fully effective”.
This would enable Berlin to retain flexibility over the deployment of the ESM as a backstop guarantee for banks in the weaker peripheral eurozone countries, as more wrangling is expected over the date from which supervision begins.
German sources also suggested that the banking union might not be feasible within the envisaged timetable, claiming that it could be put in place “at the bare minimum within about seven months time”.
Slippage of the timetable for implementation would suit Berlin’s reticence to see the German Landesbanken – which provide credit to the German regions – covered immediately by the supervision.
Poland is emerging as the key non-Eurozone country arguing in favour of voting rights for such countries that want to join the new supervisory mechanism.
Polish finance minister, Jacek Rostowski, was described by an EU diplomat at the informal summit as “incandescent with rage” over the lack of representation that Warsaw would receive on the ECB management board if it joined the supervisory scheme.
Meanwhile the UK, the leader of the few non-eurozone countries clearly decided against joining the union, will proffer alternatives to the proposed voting schemes designed to deal with disputes between the ECB and the EBA.
One possible compromise would be to retain the current EBA voting system until 2016, and then review the situation, when the implications of any treaty change can be seen, a senior UK politician told EurActiv.
That would mean overturning the draft proposals which the UK believes imperil the single market, since it would not retain a veto.
Spain wavering over help request
The discussion on banking union follows a eurogroup meeting in which Spain announced that it would present a new set of structural reforms by the end of September.
Many analysts believe Spain will soon be forced to seek external aid to finance its debts.
The Spanish Economy Minister, Luis de Guindos said after the meeting that the new reforms were "absolutely not" linked to the conditionality of a potential bond-buying programme from the eurozone rescue funds and the ECB.
However, following the eurogroup meeting, sources said that Spain remains uncertain of how Germany would respond to an official request.
One EU diplomat told EurActiv that there were sharp exchanges in the meeting, which overran by more than an hour. The fact that De Guindos was taken ill for half hour fuelled media speculation that the discussions had been tense.