Tuesday 17 September 2019

EU set to miss June summit deadline for banking union

Jeremy Masding. Photo: Gareth Chaney Collins
Jeremy Masding. Photo: Gareth Chaney Collins
Donal O'Donovan

Donal O'Donovan

The European Union is unlikely to meet a June goal to complete work on its banking union, according to one of the finance chiefs involved in the negotiations.

While there'll be some progress, a summit of European Union leaders next month will probably fall short of the target, Estonian Finance Minister Toomas Toniste said in an interview.

Consensus may be reached on assigning a so-called backstop role to the European Stability Mechanism to deal with the largest banks should they run into trouble, he said.

"We mainly expect the June meeting to deliver an agreement on banking-sector risk reduction," Toniste, a 51-year-old former lawmaker and Olympic sailor, said in Tallinn.

"This would be a necessary step to move ahead with a more concrete backstop for the Single Resolution Fund and, in the longer term, discussions on the European deposit-insurance scheme."

Disagreements between competing groups of member states are threatening to delay completion of the banking union - a set of joint rules on bank supervision and resolution for the bloc's largest banks.

Valdis Dombrovskis, the EU commissioner in charge of financial-services policy, said last month that time is "running out" and that "it's time to decide".

European Central Bank President Mario Draghi last week stepped up calls for a euro-area fund to ensure countries don't drift apart during future crises.

Mr Draghi has thrown his weight behind French demands to complete the eurozone's banking union and create a rainy-day fund for member states.

Outgoing ECB vice-president Vítor Constancio this week warned that the summit next month would provide only disappointing progress on the issue, despite poorer member states having taken action to rein in financial risks.

A proposed common fund to protect savers is one sticking point, with Germany and other EU contributors keen to avoid picking up any potential tab for bank failures elsewhere.

Berlin is also wary of the scale of non-performing loans still sitting on bank balance sheet in some member states - notably Italy - but including Ireland.

The ECB's push to slash bad loan stocks is behind Irish banks' sales of distressed mortgages and commercial loans. This includes PTSB, headed by Jeremy Masding, pictured.

Ultimately, banking union was supposed to help break the so-called 'doom loop' between bank debts and national debt that emerged during the euro crisis.

Estonia supports an upfront restructuring mechanism in cases where nations with unsustainable debt ask for a euro-area bailout, Toniste said.

Debt restructuring in such cases "shouldn't be a given as those debts might still be serviceable," he said.

The mechanism has been backed by countries such as Germany, which want private investors burned in bailouts before taxpayer money is used.

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