EU chiefs closer to deal on bust banks
EUROPEAN finance ministers worked late last night to reach a compromise agreement on new pan-European rules for winding up failed banks against the backdrop of a looming year-end deadline.
Ministers rushed to try and reach some form of political deal last night, amid speculation that the finer legal details would be thrashed out at a later date ahead of a summit of European leaders just days before Christmas.
The discussions form part of wider talks on ambitious plans for banking union, with just one element of the three-pillar plan so far agreed.
The politicians are debating who should be responsible for deciding when a bank is too troubled to be saved, and who should foot the cost in the event a bank needs to be shut down.
But differences exist.
Germany has questioned a proposal allowing the European Commission to have the power to decide, but reports yesterday suggested the country may be softening its stance.
The Single Resolution Mechanism (SRM) plan, drawn up by the Commission, would also see a common European fund being established, funded by levies imposed on the banks, to pay for any costs. But it won't be up and running for years, leaving questions about who should pay in the interim.
Most ministers, including Ireland's, agree such last-resort help for the SRM should come directly from the eurozone bailout fund the European Stability Mechanism (ESM), with no involvement of governments.
Germany opposes the idea, insisting there should be a network of national funds, and, if needed, borrow from the ESM.
ECB Governing Council member Joerg Asmussen believed an emergency gathering of finance ministers would be needed prior to the EU summit on December 19 for agreement.
A deal is needed by the end of the year because a failure to meet the deadline could result in delays in implementation because of European Parliament elections and changes in the makeup of the Commission.
Banking Union Q & A
Q: Are we still talking about banking union?
A: Yes, I'm afraid so. The bureaucratic workings at European level are extremely slow and of the three pillars of a pan-European banking union -- a single body to supervise European banks, a common scheme to deal with failing banks, and a common deposit guarantee scheme -- we've only managed to get agreement on the first -- the so-called Single Supervisory Mechanism (ESM), which entrusts the European Central Bank (ECB) as being the watchdog for European banks.
Q: Why is it taking so long and proving to be so difficult? I thought European leaders were committed to the idea that financial and banking governance in Europe had to be strengthened in the wake of the crisis?
A: They did, but remember you're dealing with 28 different countries, each with governments who have voters to answer to. Trying to get agreement with that many personalities around the table can be tough. Added to that, what is being proposed is a fundamental shift towards a more centralised form of financial governance in Europe. While all agree on the need for banking union to fend off any future crises, some countries are at odds on the extent to which power should be centralised, with even the two eurozone giants, Germany and France, differing.
Q: Oh good, we could do with more complexity at European level. So where are we currently at?
A: European finance ministers are trying to nail down agreement on the second pillar of a banking union, the Single Resolution Mechanism (SRM), or common rules on how to deal with failing banks. But there are two main issues at play: who will decide when a bank should be shut down or saved, and who will have to cough up the money to pay for it?
Q: Don't keep me in suspense, what are the answers?
A: In July, the European Commission proposed an SRM, including a single resolution board and a single resolution fund. It would mean the Brussels-based body would take on the tricky role of closing failed banks. But this faced opposition from Germany, which questioned the legality of it.
In addition, the single resolution fund is also proving to be divisive. The €55bn pot would be funded from levies on the banks, but that's years away from being realistic. Where will the cash come from in the meantime?
Germany does not want a single 'backstop' fund, such as the ESM, to pay for the clean-up if a struggling bank in one member state has to be shut down, preferring a network of national funds. France, however, backed by Italy and Spain, want a more unified European response.
Q: So we're going no where fast then?
A: That's one way of putting it. And to add to the pressure, ministers face a year-end deadline to reach agreement, ahead of a summit of European leaders scheduled for just days before Christmas. Some hope emerged on the eve of yesterday's meeting of European finance ministers in Brussels that there may be a breakthrough.
In search of a compromise, ministers from the biggest eurozone economies -- Germany, France, Italy and Spain along with Eurogroup chair and Dutch Finance Minister Jeroen Dijsselbloem -- met with senior officials in Berlin on Friday. Mr Dijssebloem was said to have tabled a compromise proposal, and according to reports, the differences between Germany and France had narrowed by Monday night.
Q: Where to now?
A: The finance ministers may have done the ground work, but it will likely fall to Europe's political leaders, including Angela Merkel and France's Francois Hollande, to move the process further forward when they meet for their two-day Summit on December 19.