Talks that ended at 1am on Monday night were deemed "a complete waste of time" by some MEPs, who accused EU member states of "dragging their feet" on a series of reforms that would allow Brussels-based supervisors to oversee, and in some cases overrule, their national counterparts.
As a result, the European Parliament has agreed to postpone today's planned vote on a package of reforms to establish the new EU supervisors to September as question marks hang over whether member states and MEPs will be able to broker a workable compromise.
Instead, MEPs will today vote on a smaller set of amendments on financial supervision, with a separate vote on bank capital requirements and bonuses forecast to go through with minimal debate.
The disagreement on financial supervision spans a number of reforms but in short they all present member states with the same question: more or less EU intervention for Europe's banks?
The reforms, drawn up by the previous commissioner for the internal market, Charlie McCreevy, would establish four new bodies in charge of financial supervision: a European Systemic Risk Board (ESRB) for macro-prudential oversight and three smaller supervisors for pensions, securities and banks.
Since their inception, the European Parliament's rapporteurs have tried to beef up the new authorities' potential powers over financial markets, including a proposal which would see banks and other financial companies receive direct orders from the EU body if the national regulator had failed to act.
"There will be no agreement with the European Parliament if the Council cannot accept that the last word on financial supervision belongs to the new supervisory authorities," Guy Verhofstadt, the leader of the liberals in the Parliament (ALDE), insisted at a debate on the issue yesterday.
"Regarding institutions with a significant financial liability, the body taking decisions should be the national supervisor," an EU diplomat argued.
The diplomat's argument is shared by at least seven other member states, which include several Central and Eastern European countries as well as the UK.
"This has been going on for months. The Council comes to the meeting and asks for some more time," said one parliamentary source exasperated by the situation.
Though the position of the member states appears irreconcilable with MEPs desire for "more Brussels," the EU's new Belgian Presidency, tasked with brokering a compromise, remains optimistic.
"We have to try to see what room for maneuver we have," said Bernard Bulcke, a spokesperson for the Belgian Ministry of Finance, admitting that the presidency had expressly asked the Parliament to delay the vote to buy more bargaining time.
Spain at heart of problem?
Questions hang over how committed the EU's outgoing Spanish Presidency was to brokering a compromise on financial supervision, as some accuse the Spanish Finance Ministry of not wanting a deal.
The EU's week-old Belgian Presidency received praise for appearing constructive in talks with MEPs and the European Commission compared to its Spanish predecessor.
Parliamentary sources accuse the Spanish team of diplomatic attachés of being "inflexible" and too junior to gain any real ground.
Other EU sources allege that the Spanish Presidency was a "messy and disorganised" troop that did not broker a deal because it did not want one.
Not all appears to be lost though, as MEPs plan to go ahead with a vote on bank capital requirements and bonuses, which sources from the legislature's economic and monetary affairs committee (ECON) predict should go through without a hitch.
According to the Parliament's draft legislation, MEPs are intent on capping bankers' bonuses in the EU at 30% of their salaries, and 20% for higher salary bands (EurActiv 01/07/10).
Recent talks between the member states, the European Commission and the Parliament reveal that the draft has a great deal of political backing, though tensions are expected to resurface at next week's meeting of finance ministers in Brussels.
