Business World

Thursday 14 December 2017

Finance ministers resume push for banking union

Colm Kelpie

Colm Kelpie

EU finance ministers will this week pick up where they left off in July by trying to push ahead with plans for a pan-European banking union – amid resistance and tough talk from Germany.

With chancellor Angela Merkel hoping for re-election this month, European finance chiefs will meet in Lithuania on Friday and Saturday to wrestle over how to handle the banking industry.

It is not an easy task, as deep cracks exist in the grand plan, with Germany in particular raising doubts about its overall feasibility.

The whole concept dates from June last year when EU leaders announced it was imperative to break the link between banking and sovereign debt.

It looked good for Ireland, as one of our key problems was that the State's crippling bank debt had been placed squarely on the shoulders of taxpayers.

A month later, EU financial services chief Michel Barnier called for pan-European banking supervision "with real teeth" accompanied by a joint bank resolution system and pooled deposit guarantees.

The first step, to create a single bank supervisor under the European Central Bank (ECB), looks set to be in place towards the end of next year.

A second step, to create a resolution agency to wind up failed banks, and a third, to create a single deposit guarantee scheme, have encountered opposition.

Germany has said that for a full banking union to be rolled out, the Lisbon Treaty must be altered. That is a potentially long-winded process and also suggests the need for a referendum in Ireland, although the Government insists everything can be done under the existing treaty.

The European Commission says delays could reignite the financial crisis that has already forced five of the eurozone's 17 nations, including Ireland, to seek international aid.

The finance ministers' meeting this week in Vilnius as part of the Lithuanian EU presidency will be the first since a proposal for a single EU authority for restructuring and bailing-out failed banks was unveiled by Mr Barnier in July.

The Barnier plan would create a €55bn common fund financed by levies on banks and give the European Commission the final say on when to close them. The Germans, though, have questioned the plan's legality.

"There is no plan B," Mr Barnier said. "It's urgent that we deliver this second pillar of the banking union, which the euro area needs for its stability."

EU countries have already begun negotiations with the European Parliament on legislation that sets common standards for bank shutdowns, including rules on which bank investors will take a hit first in the event of a wind-up.

A deal on this was struck in June by EU finance ministers, and the proposed single resolution mechanism is designed to build on that.

Still on the cards – and a crux issue for Ireland – is whether Europe's permanent bailout pot, the European Stability Mechanism (ESM), will pay for the cost incurred by taxpayers in bailing out our banks.

There has been political opposition, with Germany strong in its assertion that the ESM should not be used for legacy debt, only for future crises. The €500bn fund has only €60bn set aside for direct bank recapitalisations.

It is going to be a tough task for the Government, but it claims it is still on the agenda. (Additional reporting, Bloom- berg)

Irish Independent

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