Germany Said to Resist EU Push Forward on Deposit Insurance

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  • EU sought support by pledging to tackle legacy issues
  • EU Commission offered draft document for planning meeting

Germany pushed back against European Commission efforts to build support for its forthcoming deposit insurance proposals at a working group meeting last week, according to two people familiar with the talks.

The commission, the EU’s executive arm, is working on deposit-insurance proposals that take account of past differences among nations, while also seeking to clamp down on bank risk-taking. At the Nov. 6 planning meeting, the commission pledged to tackle current disparities between nations as it works to create a system that will build ties and strengthen the euro area’s banking union.

“A legislative proposal will need to take into account so-called ‘legacy issues’ relating to the fact that different funding levels currently exist among national DGS,” according to a draft document on deposit guarantee schemes prepared for the working group. “In addition, the proposal will need to address moral hazard concerns that could arise.”

In response to the commission paper, many nations said they’d wait for details before offering comment, the two people said, asking not to be named because discussions are ongoing. France and Ireland offered more positive reactions, one of the people said.

Financial Crisis

The Brussels-based commission is set to release on Nov. 24 its proposal for how national deposit insurance systems can provide reinsurance to each other, as part of broader efforts to strengthen the euro area after the financial crisis. Vice President Valdis Dombrovskis said on Wednesday that the commission’s “fully aware” of Germany’s position on the issue.

“It’s exactly to address concerns of a number of member states, not only Germany,” that “we need to find a balanced proposal,” he said. “The issue is far from receiving unanimous support.”

The commission paper doesn’t get into the technical details of the proposal, instead seeking comment from nations on how to move forward.

“In the absence of a common deposit insurance scheme for the banking union, national deposit guarantee schemes may be overwhelmed by large local shocks,” the working paper said, noting that such stress could exacerbate the vicious circle between sovereign debt woes and financial-sector struggles that fueled the euro area’s years of crisis.

Level Playing Field

If the EU can’t sever the bank-sovereign link, “the existing construction of the Banking Union will fall short in providing a truly level playing field for depositors and the banks seeking to attract those deposits,” the paper said.

Germany pushed back against the commission plan in last week’s technical meeting, according to two people familiar with the talks, who asked not to be named because the discussions were private. Earlier this month, the German parliament approved a resolution urging German Chancellor Angela Merkel not to agree to the commission’s forthcoming deposit-insurance initiative.

Savings and cooperative banks from Germany renewed their opposition on Tuesday in comments to the European Parliament. “We oppose the transferring of these funds to other countries,” says Georg Fahrenschon, president of the German savings bank association. “Most of the people in Germany feel more secure with the current deposit protection than with a European solution.”

All nations would benefit from a move toward common deposit insurance, according to a European Commission-backed think tank. The European Political Strategy Centre said that any steps toward this aim would help financial stability across the euro zone.

“The creation of a single euro area Deposit Insurance Scheme remains politically controversial, but it is necessarily the final objective of the process” to strengthen the euro and create a banking union, the think tank said. A reinsurance scheme or an EU-backed “top-up” system “would seem to be both implementable in the short term and provide improvements to the current setup.”

A European Commission spokeswoman declined to comment on the document prepared for last week’s working group meeting.