The agreement was dogged by a dispute over whether countries like Britain should be allowed to enforce stricter capital rules than those agreed for at the European Union level.
Britain has been fighting to maintain financial authority over the City of London, Europe's finance capital, as other EU members move to centralise supervision of banking and finance in Brussels and the London-based European Banking Authority (EBA).
Britain wanted powers to raise minimum capital requirements beyond the 7% basic threshold required by the Basel Committee, international regulatory advisors for the finacial services industry (see background).
It also wanted to do so without reference to Brussels or the EBA, even when the capital thresholds involved branches of British banks in other member states.
France and other countries claimed such a move could have a distorting effect on competition, veering Europe away from much-needed central control, and wanted to refer such decisions to the European Commission, or mediation through the EBA.
Agreement was key target of Danish EU presidency
Ministers eventually agreed to allow member states to demand of their banks an additional 3% of capital reserves over the basic level – without referring to the Commission or the EBA. In return, the UK dropped earlier objections to certain capital calculation criteria beneficial to German and French banks.
For the Danes, the agreement capped off one of their key presidency targets to achieve consent on the so-called Basel III bank capital rules.
“All countries are behind the compromise agreement and it's an important way to avoid a repeat of the financial crisis,” Margrethe Vestager, the Danish finance minister who chaired the meeting, told reporters afterwards.
She said the agreement struck the right balance between a single set of rules required to enforce the single market, but also gave some member states the flexibility to add on extra measures in order to fulfil national requirements.
Michel Barnier, the EU's Internal Market Commissioner, welcomed the breakthrough but in caged terms, indicating that the Commission would seek to claw back some of the flexibility provisions won by Britain in the agreement. The final wording of the new EU law will now be negotiated between the European Commission, Council and Parliament, with the Assembly expected to vote on the text during a July plenary session in Strasbourg.
“Whilst indicating two clear reservations on the level and conditions for flexibility, we think there is room for improvement in the text,” Barnier said afterwards.
“I was not the only one to voice reservations, several finance ministers, the vice president of the European Central Bank, and the European Banking Authority also had concerns,” he said.
Spat over EU's 2013 budget
Yesterday's ministerial meeting in Brussels also witnessed strong opposition from France, Germany and the UK – along with other net EU budget contributors – to a European Commission proposal to increase the EU's expenditure by 6.8% in 2013.
The Commission's proposal received a boost, however, in the form of a joint statement by 11 finance ministers calling for an increase in regional policy payments within the EU's 2013 annual budget.
The statement was issued during the meeting by ministers from the Baltic states, Bulgaria, Poland, Romania, Hungary, Portugal and Slovakia – all countries that are net recipients of EU funds.
The brewing spat over the 2013 budget foreshadows difficult negotiations, set to heat up this autumn, over the EU's multi-annual financial framework, the funding package for the period from 2014-2020.