Germany Bends in Bank-Failure Talks Before EU Summit

Photographer: Krisztian Bocsi/Bloomberg
German Finance Minister Wolfgang Schaeuble yesterday opened the door to an agreement on giving the European Commission a role in saving or shuttering banks, something he had previously rejected.

Germany softened its opposition to two key elements of a plan for handling euro-area bank failures as European Union finance ministers race to break a deadlock on the proposal before next week’s EU summit.

German Finance Minister Wolfgang Schaeuble yesterday opened the door to an agreement on giving the European Commission a role in saving or shuttering banks, something he had previously rejected. Germany would also consider splitting talks on the proposed Single Resolution Mechanism, a government official said, with parallel negotiations on a decision-making mechanism and on a common fund that has proven a lightning rod for criticism.

EU leaders have made an agreement on the bank-failure bill a top priority for their Dec. 19-20 meeting, with the goal of getting the law on the books before the European Parliament goes into recess for elections in May. Finance ministers convene today to push for a deal on the proposal, which the European Central Bank says is vital to the bloc’s efforts to prevent future financial crises.

Dutch Finance Minister Jeroen Dijsselbloem, who floated the idea of splitting the SRM proposal last week, said the finance ministers will “certainly” meet their deadline. “That’s our task. We need to come to a solution before the end of the month and we will,” he said before chairing a meeting of euro-area finance ministers yesterday.

‘Strong and Independent’

The ECB begins to supervise euro-area banks next November, and wants a “strong and independent” resolution authority with a central fund to cover related costs. EU nations have made scant progress toward a compromise since the plan was introduced in July. The most contentious issues are the common fund, the scope of the mechanism and the question of who’ll have the final say in ordering a bank closure.

Progress has also been stalled by the prolonged coalition talks in Berlin since Chancellor Angela Merkel’s party won a Sept. 22 election.

Schaeuble, Dijsselbloem, ECB Executive Board member Joerg Asmussen, Michel Barnier, the EU’s financial-services chief, and finance ministers from France, Italy, Spain and Lithuania held talks into the evening yesterday, renewing a negotiating format first used in Berlin on Dec. 6. The building in which the talks were held was closed about 11 p.m. in Brussels, forcing reporters to leave with no information about the outcome of the deliberations.

‘No Stable Basis’

Dijsselbloem’s proposal to divide the discussion was intended to help resolve a debate on the legal basis for the bank-failure plan drafted by Barnier, and particularly the common fund he envisaged to cover resolution costs.

The Dutchman also laid out a new proposal for how the fund would work, calling for a system where each country’s banks pay into a national compartment that would be tapped first in time of crisis.

In the policy agreement reached by Merkel’s Christian Democrats and the Social Democrats, the two parties backed “a unified European resolution fund” filled by levies on banks. Until it’s up and running, national resolution funds -- and ultimately national governments -- would be responsible for their own banks, with the possibility of seeking a Spain-style bailout from the European Stability Mechanism.

French Finance Minister Pierre Moscovici yesterday reiterated his support for a single resolution fund with a “unique backstop” to cover shortfalls while the fund is filled with levies on the banking industry. “I hope we’ll leave tomorrow evening with an agreement, even if it’s late,” he said.

‘Legal Situation’

With the fund handled separately, a compromise might be possible on the mechanism Barnier set out for handling bank failures, with the commission, the EU’s regulatory and executive arm, signing off on resolution decisions. After months of rejecting this idea, Schaeuble yesterday indicated a willingness to compromise.

“We all know what the European legal situation is,” Schaeuble told reporters as he entered a meeting of euro-area finance chiefs. “There is a limitation that an agency can’t take a final decision. We need a formal confirmation. But that has to be done in a way that avoids a conflict of interest within the commission. I think there are solutions for that.”

EU nations by “a large majority” consider that the final decision-talking role should be given to the commission, according to a Lithuanian note published on the EU’s website, and dated Dec. 6. Lithuania holds the EU’s rotating presidency.

‘Taxpayer Money’

Finnish Finance Minister Jutta Urpilainen said yesterday that the Council of the European Union, which represents EU member states, could be given the power to close banks instead of the commission. Germany previously backed this option. “When significant amounts of taxpayer money are used, there needs to be a political mandate,” she said.

Lithuania tested this idea at a meeting of diplomats this month and concluded: “The council is seen as the less efficient alternative due to a number of legal, procedural and timing constraints.”

On scope of the resolution authority, the German coalition platform, which must still be approved by the Social Democrats rank and file, supports the creation of “a European resolution authority” that would cover “systemic, cross-border banks.”

Barnier’s proposal would place all euro-area banks within the SRM. Germany favors a compromise that would mirror the supervision deal hashed out for the ECB, which leaves it out of day-to-day decisions over most banks while allowing it to intervene at any bank if necessary.

Other outstanding issues in the talks include how soon the EU should activate planned tougher rules on creditor losses at failing banks, with Germany among nations calling for an earlier start-date.

Ministers also need to tackle concerns raised by the U.K. and Sweden, two countries outside the euro area, that they could face unfair costs or be discriminated against unless safeguards are built into the text.

To contact the reporters on this story: Rebecca Christie in Brussels at rchristie4@bloomberg.net; Jim Brunsden in Brussels at jbrunsden@bloomberg.net; Rainer Buergin in Brussels at rbuergin1@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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