Tough decisions on financial supervision remain for summit

ANDREW WILLIS

10.06.2009 @ 07:52 CET

EUOBSERVER / BRUSSELS – Finance ministers meeting in Luxembourg on Tuesday (9 June) made progress on a new financial supervisory framework for the European Union but failed to reach an agreement on several of its most contentious issues.

Division over who should chair a new body designed to monitor overall risk levels in the European financial system mean EU leaders will be left to make the tough decisions when they meet in Brussels on 18-19 June.

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At stake is the chairmanship of the proposed European Systemic Risk Council, with the European Commission last month suggesting the position should be filled by the president of the European Central Bank.

The UK and a number of other member states outside the Eurozone however, fear their interests will not be represented sufficiently if this is the case, with wrangling now likely to continue all the way up to the next European summit in just over one week.

"I am fully sure that the European Council [of EU leaders] will adopt the commission position," economy commissioner Joaquin Almunia said confidently on Tuesday evening, citing the Eurozone's 16-country membership as sufficient to ram the proposal through.

Binding mediation

As well as the ESRC chairmanship, another bone of contention surrounds commission proposals to give powers of "binding mediation" to three new European-level authorities that will oversee national regulators in the areas of banking, insurance and securities.

While finance ministers agreed on Tuesday that the three authorities should have "their own personality", the UK opposes handing them the power to settle disputes between national regulators.

Writing in the Financial Times on Tuesday, Lord Myners, financial services secretary to the UK Treasury, said shifting powers to the EU level brought no guarantee of strengthened stability and that ultimately national governments should retain the last word.

"National supervision must be pre-eminent when the cost of the failure of an institution lies with the taxpayer," says Mr Myners in the article.

However Swedish Prime Minister Fredrik Reinfeldt, whose country will take over the EU's rotating presidency next month, appeared to take a different position when speaking in Brussels on Tuesday.

"Financial turmoil is above the nation state," said Mr Reinfeldt while addressing an audience at the Centre for European Policy Studies. The Swedish leader said Stockholm would seek to get agreement on the issue under its presidency.

Considerable agreement despite the disagreement

As well as preparing the background on financial supervision for the upcoming summit, finance ministers signed off on a report stating that stimulus spending to date within the EU has been "timely, targeted and temporary" and that no further spending was needed at present.

"Today we paid attention to an exit strategy and this discussion will continue in the coming months," said Mr Almunia, whose institution has warned over the dangers of rising budget deficits in different member states.

Czech Finance Minister Eduard Janota – whose country currently holds the EU presidency – said the recapitalisation of banks and the various guarantee schemes had helped prevent a financial meltdown but cautioned against over optimism.

"The banking sector remains fragile and in the future we will need to deal with the bad assets [held by banks]," he said.

The ministers also discussed the financing of measures to fight climate change as the EU attempts to come up with a common position before entering into United Nations discussions in Copenhagen this December.

"The EU is at the forefront of the fight against climate change and we should not abandon this position," said Mr Almunia, an acknowledgement that some EU member states including Poland are keen to calculate individual contributions before agreeing on a final EU figure.