German Finance Minister Wolfgang Schaeuble said the debate over so-called legacy assets under a common European bank supervisor is a “phantom” and a transfer of legacy bailouts is not compatible with firewall fund agreements.
If a country applies for assistance and signs a memorandum of understanding, the European Stability Mechanism pact does not allow nations “to a certain extent to automatically transfer existing bank recapitalization programs -- that doesn’t conform to the rules of the ESM treaty,” Schaeuble told reporters in Luxembourg today after a finance ministers’ meeting. “This legacy debate is a phantom, if I can put it bluntly.”
European leaders agreed in June to set up common banking supervision under the auspices of the European Central Bank and said that the new oversight would make it possible to consider direct bank bailouts from the 500 billion-euro ($646 billion) ESM fund. Finance ministers of Germany, the Netherlands and Finland on Sept. 25 issued a statement saying that legacy assets that weigh down lenders’ books should be under the responsibility of national authorities.
“We are talking about bank recapitalization only in the context of Spain,” Schaeuble said today. “Spain is doing everything right. Spain hasn’t in any way deserved this discussion, this constant uncertainty. They also didn’t need 100 billion euros, but rather significantly less.”
Asked if he agrees with ECB President Mario Draghi that the common supervisor should come into force by Jan. 1, Schaeuble said “we’re doing everything so that this can come to pass as quickly as possible. But we also all agreed that we must stop establishing expectations that we can’t fulfill.”
Draghi told lawmakers in testimony to the European Parliament today that the ECB should begin taking over bank supervision at the start of next year. He said the ECB needs a year to fully assume its role.
“If President Draghi says in parliament that that’s what he wishes, then I can only share this wish,” Schaeuble said. “If you ask me whether I think it is realistic, that this will be in force by Jan. 1, I would say that I can’t promise it.”