EU leaders meeting in Brussels late last night hailed the agreement on a pan-European banking union, the final details of which were ironed out by finance ministers meeting yesterday, but anticipated arduous negotiations with the European Parliament. They however failed to agree so-called "contractual arrangements" designed to push member states to reform their economies.
French President François Hollande hailed the banking union agreement reached by finance ministers, saying that “Europe has achieved more in a few months than it has in perhaps the past ten years”.
"This has been a great success due to the diligence of finance ministers,” German Chancellor Angela Merkel said afterwards.
Both leaders acknowledged the strong opposition to the deal expressed earlier yesterday evening by the Parliament’s president, Martin Schulz.
Schulz: Banking union text could have negative effects
Schulz wants the Commission to be the ultimate winding-up authority over banks which are within the supervisory mechanism; ministers agreed to a complicated committee structure that would still leave a lot of power within the member states.
The agreement now proceeds to trilogue negotiations with the Parliament and Commission before final agreement can be reached.
“This is comparable to dealing with an emergency admission to hospital by first convening the hospital’s board of directors instead of giving the patient immediate treatment,” said Schulz, adding that adopting the agreed text “will not only fail to have positive effects, it could have negative ones”.
These were the key grudges, but others peppered Schulz’s speech. He said that the trilogue process would be “very long, very difficult, very complicated”.
“There are always tough negotiations with the Parliament and this is part of the democratic discussion,” said Hollande.
The French president said that he was confident a compromise could be brokered, whilst Germany’s Merkel said she was anticipating “intensive dialogue with the Parliament”.
Contractual arrangements – too hot to discuss in detail
Leaders however failed to discuss in detail “contractual arrangements” designed to be the new instrument in the expanding EU toolbox to try to push economically unsound countries to complete reform commitments.
The European Commission’s proposal to introduce such contracts would legally force countries to implement reforms and gain competitiveness. To date, countries can be told off by the Commission and “recommended” to carry out reforms, but they have no binding obligation to do so, as long as they do not breach the Growth and Stability Pact which limits budget deficits to 3% of GDP.
Merkel has previously backed the proposal to enhance the economic governance of the eurozone through contractual arrangements, but is reticent on what rewards should be offered in return.
“We need to coordinate. Do we need competitiveness mutual agreements? This is what is being discussed," said the French president.
"There can however be a reluctance to discuss this because the idea of a solidarity mechanism make some [countries] worry that they will have to pay for the others,” he added in a veiled side-swipe at Germany.
"There remains a lot of uncertainty over the financing, and that is why we have decided to revisit the issue next year," he concluded.
Contractual arrangements will be revisited by EU heads of states in October 2014.
At a summit in October last year, 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.
A new milestone in the EU’s efforts was reached in June when finance ministers struck an agreement on banking union that would force investors and wealthy savers to share the costs of future bank failures – or so-called ‘bail in’ – to shield taxpayers from unpopular bank bailouts.
The European Commission then tabled new proposals in July to complete the banking union with plans to establish a single euro zone authority to wind up failed banks – a move that fell foul with Germany.
- October 2014: Heads of state and government to revisit the issue of contractual agreements