German Finance Minister Wolfgang Schaeuble said the money to pay for the resolution of troubled European Union banks won’t come from a single pool until decision-making powers in the bloc are more centralized.
Germany instead seeks a “network” of national resolution authorities and backstop funds to deal with crisis-hit banks in the euro area, Schaeuble said in a speech today in Hamburg, reiterating the government’s position.
The resolution facility “can’t just be a European fund,” Schaeuble said. “Because the European fund has to be fed by someone. And if we mutualize liability without fully mutualizing the decision-making power, we create the wrong incentive again. Therefore we’ll have to get by with a network in the first stage, or focus on a network, as long as we haven’t created further institutional improvements.”
Germany’s policy pits it against the European Central Bank, European Commission, and euro-area governments including France, which have called for rapid steps to push crisis intervention at failing banks to the EU level, in a bid to help nations repair their ravaged public finances and restore confidence in lenders.
“The banking union won’t work like many are imagining it, that we simply say: ‘Everyone, or a European fund, is liable for all European banks,’” Schaeuble said. “That would be nice, but it would be such a catastrophically wrong incentive and would not work. We can’t do that.”
ECB Vice President Vitor Constancio called last month for swift progress to put in place a “strong authority” with “a privately funded European resolution fund at its disposal,” as well as access to taxpayer money as a last resort.
Michel Barnier, the EU’s financial services chief, has said he will present a proposal along these lines in June, adding that a euro-area resolution fund for banks is a logical step in a currency union.
A central authority that is ultimately backed by the taxpayer “would imply significant legal risk both in terms of European law and constitutional law,” according to a German position paper obtained by Bloomberg News, dated March 13. “There is not much room left for further centralization” under the bloc’s current treaties, it says.
A more centralized approach to bank resolution could only come in tandem with more central coordination of economic and fiscal policy, according to the document.
“On the longer term issue, i.e. some sort of greater fiscal and political union, I find -- with all due respect -- a lot of confusion out there,” Erik Nielsen, global chief economist at UniCredit, said in a note to investors. “Confusion about how much fiscal and political union is needed to make a currency union work, confusion about what a banking union really is.”