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08/12/2016

EU bank bailout regulation plan hits snag

Euro & Finance

EU bank bailout regulation plan hits snag

dexia-bank.jpg

The single regulation mechanism for bank failures is the subject of continuing talks between the European Parliament, the Commission and Member States. If no agreement is found this week, the plan could be postponed to 2015.

How to save a failing bank? Europe is still searching for an answer. Following a meeting of EU Finance Ministers on Tuesday (11 March), and the tripartite consultation between the Parliament, Member States and the Commission – known as the trilogue – on 12 March, no agreement has been reached.

Michel Barnier, the EU Commissioner responsible for internal market and services who has vested much time in these negotiations, reminded the ministers that the issue was urgent and could not be delayed much further.

“The banking union has to be equipped with its second pillar, the single resolution mechanism, as its first pillar, the single supervisory mechanism, becomes operational. Both its credibility and efficacy are at stake,” he said.

In practice the “single resolution mechanism”, aimed at winding down failed banks, still poses problems, with EU member states still hoping to reach a collective decision to put in place a single fund of 55 billion.

Who should press the button?

This is the point where general consensus ends. There still is the persistent question of who should trigger the rescue operation of ailing banks, or in general terms, who should “press the button”.

>> Read: Leaders hail banking union, anticipate fight with Parliament

Germany prefers to entrust this responsibility to member states. In contrast, MEPs favour vesting all rights to the European Commission. The negotiations between them are creating a particularly complex system.

Until now, the draft text stipulated that in cases where over 10% of the EU bank resolution fund was required, authorisation had to come from at least two-thirds of office members of the resolution authority, representing at least 50% of all contributions.

This distribution gave substantial influence to large countries like Germany and France.

However, the Belgian Green MEP Philippe Lambert claims that “the member states have accepted to lower this threshold to 30%," which in his opnion is "a significant step forward.”

Talks also focused on the transitional period of mutualisation, the period before the fund effectively starts operating. Under the current state of negotiations, member states have planned for the transition phase to last until… 2025.

Adversely, MEPs argue that the delay should only be three years – or until 2018. Member states then proposed to shorten the transitional period from ten to eight years, which Philippe Lambert claims “does not change much”.

Home stretch

Negotiations resume next week, in the hope of achieving an agreement before the 20 – 21 March EU summit, the final meeting of EU heads of states and government before the May European elections.

The meeting is likely to be busy, as underlined by European Commission President José Manuel Barroso, in a letter addressed to the heads of states last week.

As well as the planned agenda focusing on the European industry, energy and global warming, Ukraine will no doubt be a hot topic at the Brussels leadership summit.

For once, financial issues like the banking union, or even the fact that Austria and Luxembourg have renounced bank secrecy, will not be at the top of the summit's agenda.

This could prove a nuisance for the banking union, which will be set aside because of the lack of systematic arrangements necessary to solve banking crises. The matter is likely to be postponed to 2015.

Background

At a summit in October 2012, EU leaders agreed plans to complete the European banking union by January 2014, after the general elections in Germany.

The concession was made to German Chancellor Angela Merkel who argued for "quality" over "speed" in putting in place the new supervisory system, seen as a cornerstone of the EU's efforts to end the eurozone' sovereign debt crisis.

Timeline

  • 20-21 March: Last Council of Europe before the renewal of the institutions