French President Francois Hollande and Italian Prime Minister Mario Monti are pressing countries including Germany and Finland to drop resistance to the European Union’s plan to implement common banking supervision on Jan. 1.
Hollande and Monti were joined by the prime ministers of Spain, Portugal and Malta yesterday in calling for progress at the region’s summit in Brussels Oct. 18-19.
“The next European Council must pave the way towards the establishment of a single European banking supervision system, to be decided before the end of the year and operational by January 2013,” the five leaders said in a joint statement after meeting in La Valletta, Malta. Jose Barroso, president of the European Commission, also participated in the meeting.
Hollande and Monti are rebuffing calls by some policy makers, including German Finance Minister Wolfgang Schaeuble, to slow down the process of passing bank supervision from national authorities to the European Central Bank. EU leaders called for the single supervisor in June as a condition for allowing banks in the 17-nation euro area direct access to the 500 billion-euro ($651 billion) permanent bailout fund, the European Stability Mechanism.
“We are particularly in agreement,” Monti told reporters, in reference to the banking union timeline, after the meeting.
Hollande, Monti and Spanish Prime Minister Mariano Rajoy are pushing for deeper integration among European governments to counter the region’s sovereign debt crisis. Schaeuble and his counterparts from Finland and the Netherlands are seeking to shield the common regulator from being burdened by troubled banks. Schaeuble said Sept. 15 that banks should be subjected to stress tests before passing under ECB supervision.
The leaders also discussed the EU’s bond-buying mechanism as pressure mounts on Rajoy to request the support.
“For the moment, Spain hasn’t taken any decision,” Rajoy told journalists in Malta. “The only thing I will say is that the decision will be taken when the time is right and when we know what the conditions will be.”
ECB President Mario Draghi said Oct. 4 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.
“We need to work to make the banking union ready by the end of the year,” Hollande told reporters.
Luxembourg Finance Minister 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.
Sweden, Poland and Hungary, which don’t use the euro, 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.