EU Moves Toward Euro Bank Oversight Amid Disagreement

European efforts to pave the way for direct bank bailouts have foundered because of concerns that current plans to build a euro-area bank supervisor would hurt nations outside the common currency.

New proposals are more explicit about how the European Central Bank should coordinate with national supervisors once joint oversight is in place, according to a document prepared by the Cypriot presidency of the European Union and obtained by Bloomberg News.

The compromise Cypriot text would require the ECB to share information with local authorities and coordinate closely on issues that could involve the prospect of closing a bank. It says non-euro nations who choose to join the bank oversight regime could leave upon request at any time.

These concessions aren’t enough to reassure countries outside the 17-nation euro area that their interests will be protected, ministers from Denmark and Sweden said today.

“More steps need to be taken,” Danish Economy Minister Margrethe Vestager said in a Bloomberg Television interview in Luxembourg. “We would like to have a real choice whether we should join or not.”

Finance ministers in Luxembourg acknowledged that the EU is unlikely to launch the new oversight regime by the start of 2013 as initially hoped. Any delays mean a longer wait for Spain, which is looking to hand off its financial-sector rescue to the euro-area’s 500 billion-euro ($649 billion) firewall fund once the new system is in place.

‘Ambitious’ Deadline

“The Jan. 1 deadline is probably ambitious,” Dutch Finance Minister Jan Kees de Jager said in an interview with Bloomberg Television, adding that a focus on calendar deadlines would be a mistake. “We have to do it right, without mistakes like we have seen in the past with the euro zone.”

EU leaders in June agreed to create a common bank supervisor at the ECB as a first step toward banking union amid disagreement on how the new plan should work. German Finance Minister Wolfgang Schaeuble said yesterday that those differences won’t prevent the strategy from taking shape.

ECB Executive Board member Benoit Coeure said yesterday he’s “confident” that the oversight mechanism will be ready on schedule “in early 2013.”

“The decisions will be held to,” Schaeuble said. “Announcing it is easy, but putting it into practice is more complicated.”

Broad Bailout

Spain may be first in line to test that commitment. Prime Minister Mariano Rajoy so far has resisted calls to request a broad economic bailout as his nation works through a bank rescue of as much as 100 billion euros that will be channeled through a Spanish government agency.

If the ECB assumes the oversight role, Spain could ask the European Stability Mechanism to take over the bank bailout in order to remove the debt from the government’s balance sheet. Ireland also is hoping to refinance bank debt.

French Finance Minister Pierre Moscovici said the effort needs to move ahead at full steam to wrap up negotiations by the end of 2012, with the aim of helping countries who are currently weighed down by their banks.

“There’s been no ambiguity,” he told reporters in Luxembourg. “We think there is a link that needs to be kept between this supervision and the possibility of proceeding with direct recapitalization with retroactivity.”

While in Luxembourg, finance ministers also are tackling bank capital rules and trying to cobble together a financial- transaction tax among interested nations.

To contact the reporters on this story: Rebecca Christie in Luxembourg at rchristie4@bloomberg.net; Jim Brunsden in Luxembourg at jbrunsden@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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