European Union nations are set to clash over plans to centralize the handling of failing banks, as Germany warned that the bloc is running out of road to adopt crisis-fighting measures under its current treaties.
German Finance Minister Wolfgang Schaeuble told his EU counterparts at a meeting in Dublin April 12-13 that there isn’t enough of a basis in the EU’s current rulebook for building a common authority and fund for bank failures. Other nations, including France, Luxembourg, and Denmark, are urging swift progress on putting in place a resolution system, amid concerns that treaty changes would cause unacceptable delays.
“It’s absolutely necessary that all elements of the banking union are set up as soon as possible,” Luc Frieden, Luxembourg’s finance minister, said in an interview. “It doesn’t make sense to set up a single supervisory mechanism if we don’t at the same time envisage a European resolution fund and a European deposit guarantee scheme.”
The European Central Bank and Michel Barnier, the EU’s financial services chief, have called for the creation of a European Resolution Authority, backed with a common fund, to intervene at crisis-hit banks in the euro area, saying the step is an essential part of efforts to build a so-called banking union that would untangle the fates of lenders and sovereigns. Barnier has said that he will present draft legislation in June.
“A banking union only makes sense if we have mechanisms for the restructuring and resolution of banks,” Schaeuble said. “But if we want these European institutions, we need treaty changes.”
“Whoever wants stronger integration steps has to be ready to back institutional changes in the EU and to actively support them,” he said. “The readiness and the drive to do that vary sometimes.”
Jeroen Dijsselbloem, who chairs meetings of euro-area finance ministers, said the German position meant some limited treaty change was inevitable for the EU to make further progress toward a fully-fledged banking union.
“The Germans made very clear” that they don’t consider that the current EU treaties provide a basis for centralized bank resolution, Dijsselbloem told reporters. “If we want to make further steps, we must look at a limited treaty change on this issue.”
EU nations have injected 1.7 trillion euros ($2.2 trillion) of support to their banking systems since October 2008, according to European Commission data. The colossal intervention, coupled with the fiscal crisis that then struck nations’ weakened public finances, prompted a vow from EU leaders to taxpayers off the front line of bank failure.
“I think that it’s possible to do this rapidly in the framework of the current treaties,” Barnier told reporters in reference to the resolution plans. He intends for the authority to work closely with existing EU institutions, while retaining independence, he said.
Ministers in Dublin endorsed plans to hand supervision powers to the ECB, a step billed by Barnier as a cornerstone of the banking union, after committing to “work constructively” on any proposals for treaty change.
Nations made the declaration to ease German concerns that the initiative has been hampered by the bloc’s current rulebook, which prevents a full separation of the ECB’s monetary policy-setting and oversight duties, and requires the institution’s Governing Council to make all decisions.
‘Clear Legal Basis’
“We’ll only do this on a clear legal basis, because I don’t want risks in Karlsruhe,” the western German city that’s the seat of the country’s highest court, Schaeuble said in reference to the banking supervisor.
A similar discussion on treaty limits will arise concerning the European resolution mechanism, Schaeuble said.
The supervisor, like other parts of the planned banking union, would cover the euro area, with EU nations outside the currency bloc free to join if they wish.
Danish Economy Minister Margrethe Vestager said that the EU should press ahead “as quickly as possible” with plans for a joint mechanism to handle failing banks.
U.K. Chancellor of the Exchequer George Osborne told counterparts that Britain would seize on any reopening of the bloc’s treaties as an opportunity to put forward its own requests. U.K. Prime Minister David Cameron is seeking to recast the nation’s relationship with the EU by repatriating powers, before putting the new settlement to a referendum.
“I think it must be possible as well to have a limited treaty change only on the theme of the banking union. If not, it would make it more complicated,” Dijsselbloem said.
The ECB has “been insisting” on a euro-area plan for a single resolution authority, Vitor Constancio, the central bank’s vice president, told reporters. “We need a European level initiative,” he said. “To have just national although harmonized resolution funds” won’t be sufficient, he said.
EU leaders agreed in December to set up a “single resolution mechanism” for failing banks based on “contributions by the financial sector itself” and with “appropriate and effective backstop arrangements.”