‘Very tough autumn’ ahead for EU’s banking union plans

european_central_bank_01.jpg

Clear fault lines over the timetable and treatment of non-eurozone member states within the proposed European banking union emerged at an informal meeting of the bloc’s finance ministers in Cyprus on Saturday (15 September). EURACTIV reports from Nicosia.

Internal Market Commissioner Michel Barnier wants the European Central Bank (ECB) to be installed as a central regulator for the proposed union in January 2013, with banks to start falling under its supervision from June next year.

The Commission’s “ambitious” target (see background) is “possible and necessary”, Barnier told journalists mid way through the informal meeting in Nicosia.

Germany wants slower timetable

German Finance Minister Wolfgang Schäuble led a move to slow the timetable down, however. Germany would prefer a gradual phase-in of supervision for its powerful local Landesbanken, which offer German municipalities vital credit lines.

“We strongly request that stress tests be conducted before the banks falling into the systemic risk category are transferred from the national supervisor to the EBC,” Schäuble told journalists after the meeting.

Another German concern is that the new supervisory mechanism must not merely be in place, but also “fully effective”, before the rescue fund, the European Stability Mechanism (ESM), can start to inject cash directly into the continent’s ailing banks.

Schäuble received the backing of Sweden, the Netherlands and Poland in his call to ease the timetable during the meeting.

The Dutch finance minister, Jan Kees de Jager, told ministers that the new machinery would have to demonstrate “a track record” before the ESM can be tapped.

France wants fast-track banking union

Meanwhile France led a caucus of member states which want the Commission’s swift timetable to be kept on track, supported by others – including Belgium, Italy and Spain – which would like to see the ESM lifeline in place as a soon as possible.

“We need to stick to the timetable,” Spanish Finance Minister Luis De Guindos told reporters.

French Finance Minister Pierre Moscovici said the gap in time between the implementation of the new machinery and the release of the ESM funds “should not be an ocean”.

After the meeting, Swedish Finance Minister Anders Borg said Sweden, which is not part of the eurozone, cannot join the supervisory mechanism as the draft proposal stands.

Hot autumn of negotiations ahead

Borg said the wording of the draft rules fails to protect the interests of non-eurozone countries that wish to co-operate with the new supervisor, granting the ECB too much power over their national supervisors.

The meeting paves the way for “a very tough autumn with a lot of very hard negotiations ahead”, Borg said. He added that other non-eurozone countries voiced similar concerns in the meeting.

Britain, which favours banking union but does not wish to participate in it, kept a low profile at the meeting. Chancellor of the Exchequer George Osborne reiterated the British line that the banking union “must also respect the integrity of the single market for the whole of the European Union”.

UK officials are working on proposed compromise wording that would protect the position of the European Banking Authority in any dispute that might arise between it and the ECB.

Poland and Hungary are emerging as the key non-eurozone country arguing in favour of voting rights for countries that want to join the new supervisory mechanism.

Polish Finance Minister Jacek Rostowski was described by an EU diplomat at the informal summit as “incandescent with rage” over the lack of representation that Warsaw would receive on the ECB management board if it joined the supervisory scheme.

Britain, a non-eurozone country, decided against joining the union, while others are divided, with representatives of Denmark's central bank saying it may be compelled to join.

Germany, while supportive of banking union, is concerned about supervision of all 6,000 banks in the eurozone, and believes only large "systemic" institutions should fall under EU supervision.

German sources at the Cyprus meeting suggested that the banking union might not be feasible within the envisaged timetable, claiming that it could be put in place “at the bare minimum within about seven months time”.

EU leaders decided at a June summit to create a common banking supervisor as part of a deal that would allow the bloc’s rescue funds to directly lend funds to stricken banks instead of passing aid through countries and adding to sovereign debt problems.

It is a first step towards a banking union and part of wider moves towards fuller economic and political integration which they judged necessary to break the vicious circle driven by the eurozone debt crisis which has brought the region’s economy to a standstill.

The European Commission tabled proposals for a banking union on 12 September. The reforms included giving the European Central Bank supervision of all eurozone banks, and being installed as a super-regulator by 1 January 2013.

Strong central supervision is a condition for allowing eurozone banks direct access to the €500 billion permanent bailout fund, the European Stability Mechanism.

  • 13-14 Dec.: EU leaders could adopt the plan for banking union at the formal December summit meeting.
  • Jan. 2013: If the rules are adopted, the European banking supervisor could start operation.

Subscribe to our newsletters

Subscribe