Germany is urging the European Union to improve proposals for a euro-area bank supervisor so that countries outside the currency bloc might be enticed to join, said two European officials familiar with the matter.
The EU is seeking input from the European Commission and the European Central Bank on ways to give non-euro nations a bigger voice on supervision matters at the ECB, which will provide oversight under the plan, according to the officials who are tracking the deliberations. The EU also has asked its lawyers for ways to give non-euro states more say at the London-based European Banking Authority, said the people who asked not to be named because the discussions are private.
Germany favors ECB-based ways to give a voice to non-euro nations that take part in the banking union, rather than referring all of their concerns to the EBA or some other avenue, one of the people said. EU officials have asked for suggested policy options as soon as workable, the people said.
The EBA is a London-based agency that settles disputes among European regulators.
EU leaders called for the single supervisor in June as a condition for allowing euro-area banks direct access to the 500 billion-euro ($650 billion) permanent bailout fund, the European Stability Mechanism. German Finance Minister Wolfgang Schaeuble led criticism that the project may be moving too quickly, prompting reassurances from EU Financial Services Commissioner Michel Barnier that Germany was not resisting the plan.
ECB President Mario Draghi said yesterday the central bank is preparing a legal opinion on the single-supervisor proposal to spell out accountability channels and ensure a “clear and robust” separation of bank oversight and monetary policy decisions. He said the central bank welcomes the plan, seeing it as “one of the fundamental pillars of a financial union” and an important building block for the euro area.
The issue is likely to play a pivotal role on whether the ESM is able to aid banks directly and free countries such as Spain and Ireland from the burden of propping up their financial sectors. When EU leaders announced plans to create the single supervisor in June, they explicitly said the goal was to combat the crisis by breaking the link between banks and sovereigns.
Germany’s Finance Ministry declined to comment.
Officials are not trying to entice the U.K., home to Europe’s biggest financial centre, into the ECB-housed supervisor because it has already said it doesn’t want to join. It will press to change the proposed EBA voting procedures and other technical issues as a condition of allowing the euro region to proceed.
EU finance ministers are due to discuss the bank supervisor plans informally when they meet in Luxembourg next week, one of the people said.
Luxembourg’s Luc Frieden said the EU must study the effects a joint supervisor would have across the 27-nation EU, including on countries within the region’s single market that won’t take part in the banking plan. He predicted at least six months of technical work would be required.
“We should watch out that there’s no discrimination between banks outside the euro zone and inside,” Frieden said in an interview yesterday. “That issue in our view has not been dealt with sufficiently so far.”
Sweden, Poland and Hungary have voiced objections to the bank-supervision plan, saying its current design would require them to give up power without gaining a clear voice in decision-making. As currently proposed, non-euro nations can volunteer to join the ECB and would agree to follow ECB rules and exchange data without getting a vote on supervisory panels.
“We of course have to make sure that those who join this bank union also will get influence on the same terms,” Swedish Finance Minister Anders Borg told reporters in Stockholm yesterday. He also said Swedish taxpayers shouldn’t have to pay for the cost of bailouts to Greece or another euro country.
The EU could get around some objections by creating a two-tiered governing structure at the ECB, Nicolas Veron of the Brussels-based Bruegel research group said in a report yesterday. He recommended a five- to seven-member supervisory executive board augmented by a larger “prudential council” that would include representatives of national supervisors. Non-euro supervisors could participate in this larger council, perhaps with a reduced voting weight.
As EU authorities grapple with the new supervisor’s design, they will need to make clear how they’ll handle the transition to the new system, especially for banks and nations already under strain from the financial crisis.
Financial markets have sought further details since a joint German-Finnish-Dutch statement on Sept. 25 that raised concerns about “legacy” assets.
The ECB’s Draghi said yesterday that defining these assets and what happens to them is a political matter.
“This is a real credibility test,” Irish Prime Minister Enda Kenny said in a speech in Brussels on Oct. 3. Ireland in January will take up the EU’s six-month rotating presidency and will play a central role in negotiations to craft a bank-supervisor deal.
“Be in no doubt, we will be punished for any back-sliding or stepping away from what has been agreed,” Kenny said. ‘It is infinitely better that we press ahead with implementation.”
Luxembourg’s Frieden disagreed that delays would put the EU’s credibility on the line. He said yesterday the bloc needs to proceed “very seriously” and consider all questions about possible effects of its proposal.
Frieden said the EU needs to be more specific about what problems will be handled at the joint level and what will remain with national authorities.
-- With assistance from Johan Carlstrom in Stockholm, Rainer Buergin in Berlin and Jeff Black in Frankfurt. Editors: Peter Chapman, Patrick Henry