European efforts to pave the way for direct bank bailouts have foundered because of concerns that current plans to build a single euro-area bank supervisor would hurt nations outside the common currency.
The European Central Bank can break the stalemate by helping to design an oversight system capable of representing countries inside and outside the 17-nation euro zone, European Union Financial Services Commissioner Michel Barnier told reporters today in Luxembourg. A “fair system” is needed for non-euro countries and responsibility for assembling it “lies in part” with the ECB, he said.
“Acceptable solutions are possible to all member states’ concerns,” Barnier said, adding that several nations outside the euro might join the plan.
EU leaders in June embarked on plans to build a common supervisor as a step toward offering direct bank bailouts from the euro-area’s firewall fund. All 27 EU nations must approve the oversight proposal for it to move forward. Non-euro nations have called for assurance their voices won’t be drowned out.
Finance ministers acknowledged the EU is unlikely to implement 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 500 billion-euro ($649 billion) European Stability Mechanism once the new system is in place.
Access to Meetings
Cyprus, which holds the EU’s rotating presidency, this week offered more explicit proposals on ECB coordination with national supervisors once joint oversight is in place, according to a document obtained by Bloomberg News.
Non-euro countries that volunteer for the banking union would have access to meetings of euro-area finance ministers when banking issues are discussed. They would also have guaranteed access to the ECB’s annual supervision reports and to oral or written answers to questions from the euro-region ministers’ group or the European Parliament, the draft says.
Non-euro nations would be able to withdraw from the system at any time under the Oct. 8 compromise proposal. The ECB would be required to share information with local authorities and coordinate closely on issues that could involve closing a bank.
Ministers from Denmark and Sweden said today that these concessions aren’t enough.
‘Clear and Robust’
“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.”
Vestager said after the meeting that the ECB hasn’t yet offered proposals for including non-euro area countries in its decisions, though her concerns have drawn political support from the European Commission, the Cypriot presidency and other nations.
ECB President Mario Draghi said last week the central bank is preparing a legal opinion on the single supervisor 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 as “one of the fundamental pillars of a financial union” and an important building block for the euro area.
“It is very important” that the law handing the ECB supervisory powers takes effect on Jan. 1 2013, Draghi told lawmakers in the European Parliament today.
Efforts so far fall short of what’s required, said Swedish Finance Minister Anders Borg. “There are severe problems still,” he said.
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 those differences won’t prevent the strategy from taking shape.
Arguments over whether currently troubled banks can be helped by the new system are a “phantom” argument that needlessly spooks markets, Schaeuble said. He dismissed market fears that concerns from Finland and the Netherlands about “legacy assets” would make it impossible for the ESM to help Spain if the new supervisor is set up and Spain continues to fulfill its obligations.
“This legacy debate is a phantom, if I can put it bluntly,” Schaeuble said. “Spain hasn’t in any way deserved this discussion, this constant uncertainty.”
Officials are not trying to entice the U.K., home to Europe’s biggest financial center, into the ECB-housed supervisor because it has already said it doesn’t want to join. It will press to change proposed voting procedures in the European Banking Authority and other technical issues as a condition of allowing the euro region to proceed.
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.”