Germany prevented a new attempt to break the deadlock on a European Union plan to boost financial stability in the banking sector by watering down a joint statement of an EU leaders’ summit, the bloc’s officials said yesterday (15 December).
The so-called banking union plan was launched in 2012 in the wake of the sovereign debt crisis and the 2007-08 global financial crisis that forced eurozone countries to provide almost €2 trillion in capital and guarantees to prop up their banks.
After agreeing on a common supervision plan for eurozone lenders, and a joint, privately-funded scheme to wind down ailing banks, the 19 countries of the single-currency bloc have lost momentum and have been stuck for months in talks on how to set up a European deposit insurance scheme (EDIS) to better protect savers, the third and last pillar of the plan.
They also disagree on whether to set up a financial backstop for the bank fund, with Germany, the eurozone’s largest economy, opposing moves towards risk sharing before southern European countries with shaky banking sectors have cleaned up their lenders and reduced their systemic risk.
“The European Council underlines the need to complete the Banking Union in terms of reducing and sharing risks in the financial sector, in the appropriate order,” read the conclusions of the regular summit of EU leaders.
The appropriate order is understood by the Germans as meaning that, first, banks in countries like Italy or Portugal should become fitter, for instance by getting rid of bad loans. And only later, richer member states would agree to put their money in common funds to shield deposits and lenders from future failures.
An initial version of the summit conclusions, circulated among EU diplomats and seen by Reuters, said new risk reduction measures were already approved and paved the way for more risk sharing.
In November, the European Commission proposed new capital rules for the bloc’s lenders, introducing in the EU stricter standards agreed at international level meant to make banks safer.
But Germany and the Netherlands said the new measures were not enough to reduce risks and urged stricter requirements. They opposed the initial draft conclusions and successfully pushed for amending the text, two EU officials told Reuters.
Officials said the fragility of the banking sector in Italy, where the country’s third largest lender Monte dei Paschi di Siena has been entangled for months in attempts to close a big capital shortfall, has made Berlin even less keen to agree on plans to share risks.
In 2012, as part of a longer term vision for economic and fiscal integration, the Commission called for a Banking Union that would place the banking sector on a sounder footing and restore confidence in the euro.
The Banking Union was to be implemented step-by-step by shifting supervision to the European level, establishing a single framework for bank crisis management and, a common system for deposit protection. While the first two steps have been achieved by the establishment of the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM), a common system for deposit protection has not yet been established.
In order to strengthen eurozone governance, the presidents of the European Commission, the Council, the Eurogroup, the European Parliament and the European Central Bank were invited to combine their efforts to prepare the "next steps for a better economic governance in the euro area".
The Five Presidents' Report of 22 June 2015 and the Commission's Communication of 21 October 2015 included as the most significant priority for a first stage of eurozone reforms (without a treaty change) a European Deposit Insurance Scheme (EDIS), the missing pillar of the Banking Union.
While national deposits guarantee schemes are already in place and provide for the protection of €100,000 per person/per account per bank, they are not backed by a common European scheme.