Finance Minister Wolfgang Schaeuble meets with his European counterparts today after Germany’s prospective coalition allies agreed there mustn’t be any taxpayer liability for failed banks.
Coalition talks between Chancellor Angela Merkel’s Christian Democratic bloc and the Social Democrats have focused on ensuring that future banking union in Europe protects German taxpayers while effectively breaking the link between failing banks and sovereign debt.
“Fundamentally, we agree that the German taxpayer must not bear liability” for failed banks, Norbert Barthle, the CDU’s budget spokesman in parliament, said in a phone interview. “Differences with the SPD over details remain, but the fundamental lines of agreement are in place.”
SPD negotiators are abandoning election campaign pledges that might have heaped new burdens on German taxpayers. These include euro bonds and setting up a European debt redemption fund -- both of which are rejected by Merkel -- adding credence to CDU claims that the SPD won’t thwart Schaeuble’s design for banking union.
Today’s meeting of euro-area finance ministers in Brussels is the first since Merkel’s bloc kicked off coalition talks with the SPD last month aimed at a so-called grand coalition. German officials say they agree with European Union partners that a plan for resolving failed banks is needed by the time the European Central Bank begins supervision of lenders in 2014.
Before Germany’s election, “the hope was that a grand coalition might soften Germany’s stance towards the euro zone,” Nicholas Spiro, managing director of Spiro Sovereign Strategy, said in a note yesterday. “Yet what was overlooked was the fact that the SPD is even more insistent on bailing in creditors to banks.”
After three weeks of talks, Merkel and the SPD are still debating details on banking union. So far there’s progress on agreeing the nature of a Single Resolution Mechanism and on interim finance for resolving banks before a central fund is sufficiently filled.
The CDU favors a network of national regulators bundled into a resolution agency, the German Finance Ministry said.
While agreeing with the CDU that the European Stability Mechanism should function as a backstop for resolution finance, the SPD wants to prevent banks from circumventing a sequence of liability to tap the ESM directly.
“The SPD doesn’t want direct banking recapitalization through the ESM,” Johannes Kahrs, an SPD lawmaker and coalition negotiator, said in a phone interview. “This would be as bad as euro bonds. We don’t have a common position yet. We have to find common ground with the CDU.”