Business World

Saturday 23 September 2017

Germany rejects calls for banking union to help tackle crisis

German Chancellor Angela Merkel attends a news conference after talks with Peru's President Ollanta Humala (not pictured) at the Chancellery in Berlin. Photo: Reuters
German Chancellor Angela Merkel attends a news conference after talks with Peru's President Ollanta Humala (not pictured) at the Chancellery in Berlin. Photo: Reuters

Annika Breidthardt and Sarah Marsh

Chancellor Angela Merkel and Germany's central bank pushed back yesterday against calls from other parts of the eurozone for the rapid establishment of a banking union, saying it could only come as part of a drive towards economic union.

Central Bank of Ireland Governor Patrick Honohan is keen to move swiftly to cross-border supervision of the bloc's biggest banks, and a deposit guarantee scheme, and sees Spain's bank bailout as a first step in that direction. Both the European Central Bank and European Commission have repeated the calls.

But Ms Merkel and a Bundesbank member said more sovereignty must first be given to central authorities to impose economic discipline on member states and measure their banks' performance more effectively than the European Banking Authority (EBA) watchdog.

Praised

Ms Merkel praised Spain's decision to request up to €100bn of European Union aid for its debt-stricken banks and laid the blame on the Spanish property bubble that has saddled the sector with bad debts.

The German leader told a meeting of business supporters that the European Banking Authority's remit had been undermined by national oversight bodies acting "out of misguided national pride", which had led to inaccurate stress tests, she said.

"No sooner had we finished the recapitalisation phase of banks from the EBA stress tests when it emerged that the Spanish stress tests were not correct," she said in a speech. "If we need European institutions that provide better oversight of banks, we have to be prepared to give up more national supervision. I want a Europe where it is always clear that common liabilities and common controls are in the same hand. It cannot be that we communitarise liabilities but leave control in the national jurisdiction," said the chancellor.

A German central banker said a banking union must be anchored in a fiscal union, with powers to stop member states breaking budget rules, because a banking crisis in one country "may require the use of taxpayer money from other countries".

The Bundesbank's Sabine Lautenschlaeger said in a speech to a banking supervision conference that "whoever is footing the bill must also have a right of control, particularly when it comes to the large sums that are seen in banking crises".

The German stance puts a banking union on the same time-consuming track as the treaty change needed to create an economic union, a process likely to take years.

The leaders of the European Central Bank and the Commission have urged much swifter agreement to help the bloc's banks, which have been lending heavily via the bond markets to over-stretched governments and are nursing bad debts from the region's slide into recession.

Irish Independent

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