Business World

Monday 18 December 2017

Draghi ups the pressure over banking union

Rebecca Christie and Jim Brunsden

EUROPEAN Central Bank (ECB) president Mario Draghi put his weight behind a European banking union during a trip to Berlin, two days after Germany led an attack on a proposal to centralise control of failing lenders.

German Finance Minister Wolfgang Schaeuble sought to keep responsibility for failing banks in national hands during two days of meetings last week in Vilnius, Lithuania.

He led a chorus of dissent against the European Commission's plan to give itself final say over when to close banks and to create a €55bn common fund for resolution costs.

If Germany derails momentum towards a year-end deal on a single resolution mechanism, it may imperil efforts to restore confidence in the eurozone's financial system.

"Banking union should help speed up the repair of banks – that is if, as I hope, we end up with a strong single resolution mechanism," Mr Draghi said yesterday. "We need a mechanism that allows non-viable banks to be wound down without financial stability risks, as we see in the US."

If the plan doesn't move forward quickly, the ECB won't be able to count on cross-border backstops if it encounters problems at euro-area banks.

The ECB is scheduled to begin supervising lenders in the currency zone as soon as October 2014, forcing the EU to grapple with who should decide when to close a bank and who will pay for it.

ECB executive board member Yves Mersch said in Dubai yesterday that the banking union was the "most immediate concern". The ECB has started preparatory work on a review of banks' balance sheets and will provide a proposal for the assessment in coming weeks, he said.

Mr Schaeuble said the European Commission's proposal must be overhauled because it was on shaky legal ground and could endanger national control of budgets. In Vilnius, the German was joined by critics from Sweden to Slovakia.

At the same time, finance ministers renewed pledges to strive for an agreement quickly so financial markets won't lose confidence that the currency zone is overcoming its crisis. "There's quite a lot to do," Mr Schaeuble told reporters last Saturday after two days of talks with his EU colleagues.

"The path that the commission has proposed toward a resolution mechanism is a rocky one. There can be no doubt about it: we need to be on a legally certain foundation."

The new resolution authority, along with ECB oversight, form the core of an effort to create a euro-area banking union that would sever the link between bank and sovereign debt.

Dutch Finance Minister Jeroen Dijsselbloem, who chairs meetings of euro-area finance chiefs, said he was confident the EU would be able to strike an effective agreement. "For now I have no reason to assume that we end up with something weak and strange," he said. (Bloomberg)

Irish Independent

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