SPD May Push ECB Bank-Failure Role in Grand Coalition

Germany’s main opposition party, the Social Democrats, called for the European Central Bank to take control of failing euro-area lenders, setting up a showdown with Chancellor Angela Merkel.

The SPD, which may find itself in a grand coalition government with Merkel after the Sept. 22 election, rejects the chancellor’s preference for having a network of national regulators handle bank resolution, said the party’s finance spokesman, Carsten Sieling. The SPD sees no “fundamental problem” in widening the ECB’s role beyond bank supervision, he said.

Germany’s upper house of parliament, the Bundesrat, will vote tomorrow on a resolution calling for the Frankfurt-based ECB to be vested with the power to shutter banks. The SPD rejects a European Commission proposal to create a Single Resolution Mechanism with a common fund for handling failing lenders. Merkel has also resisted this plan, which gives the final say on closing banks to the commission in Brussels.

If the commission’s resolution-mechanism plan doesn’t move forward quickly, the ECB won’t be able to count on cross-border backstops if it encounters problems at euro-area banks. The ECB is scheduled to begin supervising lenders in the currency zone as soon as October 2014, forcing the EU to grapple with who should decide when to close a bank and who will pay for it.

Vilnius Talks

German Finance Minister Wolfgang Schaeuble said last week that the commission’s strategy must be overhauled because it’s on shaky legal ground and could endanger national control of budgets. In talks with his EU counterparts in Vilnius, the German was joined by critics from Sweden to Slovakia.

Michel Barnier, the EU’s financial-services chief who put forward the proposal, rejected the SPD’s alternative today.

“The central bank can’t be the supervisor and the resolution authority at the same time,” Barnier told reporters in Madrid through a translator. “And the central bank isn’t asking to be the resolution authority, either.”

ECB Executive Board member Vitor Constancio said in March that “bailout of banks is for governments to do.”

Yet separating the ECB’s responsibilities for monetary policy and bank supervision from an additional authority over resolution “is not an insuperable challenge,” Sieling said today by telephone from Bremen. “Chinese walls can work. It’s not a dream solution, but why accept third-best when you can get second-best?”

Third Pole

Leading polls released this week show an increased possibility of a grand coalition of Merkel’s Christian Democrats with the SPD emerging after the election, a prospect that would potentially create a third pole of conflict over banking union to add to Merkel’s differences with the commission.

Support for Merkel’s bloc held at 38 percent in an INSA poll published today, while the SPD rose 1 percentage point to 28 percent. Her Free Democrat allies polled 6 percent, barely over the 5-percent hurdle set to qualify for parliament.

Some 50 percent of German voters prefer a coalition of Merkel’s bloc with the SPD, compared with 46 percent who reject the idea or are indifferent, according to a FGW poll for ZDF television released on Sept. 13.

Germany’s Greens, also a potential post-election partner for Merkel, also favor widening the ECB’s role to include powers of closure over banks.

“If you want independent banking supervision with non-political decision-making, we believe that the European Central Bank should have the right of final decision,” Priska Hinz, the environment party’s budget spokeswoman, said this week. “We’re concerned that there would be political deals” if the commission were given the power to order bank closures, she said.

Barnier has said the commission isn’t wedded to being chief decision-maker in the resolution system and would welcome a discussion of alternatives. The commission put itself forward for the role because of its reading of the bloc’s treaties, he said.

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