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01/10/2016

Brussels, Berlin bicker over scope of banking union

Euro & Finance

Brussels, Berlin bicker over scope of banking union

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The extent to which European banking union will cover all banks in the eurozone came under fire yesterday (3 September) as MEPs and the German finance minister raised doubts that the Commission’s blueprint will be feasible.

The EU executive has been working on a legislative proposal for establishing a Single Supervisory Mechanism (SSM) for eurozone banks. The commissioner for the Internal Market, Michel Barnier, is due to publish detailed proposals on banking supervision on 12 September.

“Our approach envisages an ambitious mechanism with a relatively broad coverage, which will oversee all banks in the euro area, with the European Central Bank at the heart of the system,” Economic and Monetary Affairs Commissioner Olli Rehn told a meeting of the Parliament’s economic and monetary affairs committee yesterday.

Parliament concerned about banking union

But Marianne Thyssen MEP (European People’s Party; Belgium), a senior member of the committee, raised the question of how many banks would be covered by the new regime.

She said that there were expert opinions suggesting that if all banks are covered, some might “redistribute their competencies” in ways that would not benefit the sector or the public. “We want to know how you will deal with that,” she asked Rehn in a question-and-answer session last night.

Meanwhile yesterday, German Finance Minister Wolfgang Schäuble rejected the plan to give the ECB powers to monitor all eurozone banks, saying it should instead focus only on systemically important institutions.

"The ECB has itself said it does not have the potential to supervise the European Union's 6,000 banks in the foreseeable future," Schäuble told German radio, expressing scepticism about the timeframe envisaged in the Commission proposals.

"With the bigger, systemically relevant banks … there is a chance that direct supervision by the ECB could be realised in a foreseeable period of time," he said.

Germany wants Landesbanks out of supervisory scope

Despite the presence of some 6,000 banks in the European Union, the vast majority are small and relatively insignificant and more than 90% of all assets are believed to be held by only around 200 institutions.

Berlin is keen to retain an exception from supervision for its state-owned and politically connected Landesbanks.

MEPs debating monetary union also voiced concerns about the relationship of the non-eurozone states to the new structure of supervision. It is presumed that the European Banking Authority (EBA) will play a mediating role between the eurozone and non-eurozone states on supervision, but there are concerns that this role may lead to a conflict of competencies with the ECB.

Meanwhile the ECB President Mario Draghi told a closed session of the committee that purchases of sovereign bonds with a maturity of up to three-years by the central bank would not breach EU rules, Reuters reported.

Draghi is set to unveil details on Thursday (6 September) of the new ECB bond-buying scheme aimed at easing borrowing costs for eurozone vulnerable countries which ask for help.

Positions

“[I believe that] banking union will hardly work without the fiscal union. But in fact it means that national budgets need to be submitted to Brussels,” Ivo Strej?ek MEP (European Conservatives & Reformists; Czech Republic) told the parliamentary meeting.

“Inside each member state – it doesn’t matter whether governments are of the left or of the right – if they propose structural reforms they are under the pressure of their voters. I do not think it will work when governments will have to submit national budgets to Brussels, which will be blamed as a source of all problems,” Strej?ek explained.

“We are in a rut and we need to get the wheel out we need to think more broadly about a solution because everything that allowed the founding father to imagine and to conceive of economic and monetary union will be in vain [if you go ahead with this plan for banking union], according to Pervenche Ber?s MEP (Alliance of Socialists & Democrats; France) “I am not mocking you, but the national parliaments will not accept this,” Ber?s added.

Background

The Commission’s Single Supervisory Mechanism proposal, which is set to be published in less than two weeks, will include a Communication which sketches out the roadmap towards a fully-fledged banking union.

An interim report on fiscal and banking union, which will be presented to the October European Council, will focus on further measures that could be introduced in the short term. The final report will come in December.

Timeline

  • 12 Sept.: Internal markets Commissioner Michel Barnier set to publish proposals for a single supervisory mechanism for eurozone banks.
  • 13-14 Dec.: EU leaders could adopt the plan at regular December summit meeting.
  • Jan. 2013: If the rules are adopted, the European banking supervisor could start operation.

Further Reading