Tuesday

25th Jul 2017

Merkel under pressure over ECB banking union role

  • The ECB is widely expected to act as supervisor of a eurozone banking union (Photo: Stephanie Jones)

Angela Merkel is coming under mounting pressure from the Bundesbank and the sister party of her Christian Democrat (CDU) group to block EU plans to make the European Central Bank the central supervisor of a eurozone banking union.

At the June EU summit leaders indicated that a deal had been reached to create a eurozone banking union to be supervised by the Frankfurt-based bank. The EU executive is expected to present legislative proposals in mid-September. However, the German Chancellor is under pressure to prevent a further expansion of the ECB’s role in combating the debt crisis.

Thank you for reading EUobserver!

Subscribe now and get 40% off for an annual subscription. Sale ends soon.

  1. €90 per year. Use discount code EUOBS40%
  2. or €15 per month
  3. Cancel anytime

EUobserver is an independent, not-for-profit news organization that publishes daily news reports, analysis, and investigations from Brussels and the EU member states. We are an indispensable news source for anyone who wants to know what is going on in the EU.

We are mainly funded by advertising and subscription revenues. As advertising revenues are falling fast, we depend on subscription revenues to support our journalism.

For group, corporate or student subscriptions, please contact us. See also our full Terms of Use.

If you already have an account click here to login.

On Sunday (26 August), Alexander Dobrindt, general secretary of the Bavarian Christian Social Union (CSU) which partners Merkel’s CDU in the Bundestag, accused ECB President Mario Draghi of bidding to become “the currency forger of Europe”.

Dobrindt attacked proposals reportedly being considered by the ECB to set an upper limit for bond yields facing weak members of the eurozone saying it was an attempt to "finance debt countries through the back door".

Leading board members on the Bundesbank have also piled in.

After Bundesbank executive board member Andreas Dombret told a banking conference on Thursday that supervisory powers would create "conflicts of interest" and undermine the independence of the bank, Bundesbank President Jens Wiedmann told Der Spiegal that plans for the ECB to buy up eurozone sovereign bonds would go beyond the bank's mandate.

They would amount to “state financing via the printing press”, he said. Although the EU treaty includes provisions to allow the ECB to act as a "prudential supervisor", it spells out the maintenance of ‘price stability’ as the bank's primary function.

There are long-standing concerns by German central bankers about the ECB’s actions in response to the sovereign debt crisis. In September 2011, Jürgen Stark, widely regarded as the ‘chief economist’ of the ECB, resigned in protest at the bank's role in buying Italian and Spanish bonds in a bid to ease lending costs.

One alternative would be to beef up the powers of the newly created EU bail-out fund, the European Stability Mechanism.

The ESM has powers to intervene on the bond market written into its mandate and MEPs and some member states want the fund to be given a banking license allowing it to directly recapitalize ailing banks. However, the status of the ESM is still subject to legal debate. The German constitutional court will rule on whether the ESM treaty is compatible with the country's constitution, known as 'the Basic Law,' on 12 September.

Bundesbank officials have also expressed concerns that they could be outvoted on the ECB’s Governing Council.

Under the ECB statute, key decisions on monetary policy made by its Governing Council require a two thirds majority on a one-member one-vote basis, with Germany having the same voting power as the likes of Malta and Luxembourg.

However, the voting weights in the ESM are calculated on the basis of the capital paid in by member states, with countries unable to pay their share surrendering voting rights. The ESM rule-book also gives countries a veto over all financial rescue actions which would require ‘mutual agreement’.

Merkel wants EU treaty convention by end of year

German Chancellor Angela Merkel is pressing for a new EU treaty convention by December, despite opposition from many countries, Der Spiegel reports. She is also revisiting the idea of the EU's top court being granted jurisdiction over national budgets.

Analysis

Germany's competing visions of Europe

No doubt fed up of being cast as the eurozone's pantomime villainess once again, this time Angela Merkel got her rebuttal in first.

ECB in nuanced denial of yield cap plans

The European Central Bank has condemned media reports about a bold plan for the bank to bring down eurozone government borrowing costs but has not denied the idea outright.

Banking union to put 6,000 banks under ECB supervision

The European Central Bank will have the "ultimate decision-making authority" on supervising 6,000 euro-area banks, a commission spokesman has said. But Germany would like fewer banks included in the new system.

Investigation

Inside the Code of Conduct, the EU's most secretive group

The informal group of national officials that is in charge of checking EU countries' tax laws is now working on the first EU blacklist of tax havens, amid critiques over its lack of transparency and accountability.

News in Brief

  1. Wallonia's Magnette leaves national politics
  2. Polish president vetoes justice reforms
  3. Turkey arrests protesters, as journalists go to trial
  4. Poll: Only 24% of Germans want 'strong leader'
  5. US envoy: 'hot war' not frozen conflict in Ukraine
  6. BMW denies Dieselgate cartel allegations
  7. Polish parliament adopts controversial justice reform
  8. GMO opt-out plan unlikely to go anywhere in 2017

Stakeholders' Highlights

  1. European Jewish CongressJean-Marie Le Pen Faces Trial for Oven Comments About Jewish Singer
  2. ACCAAnnounces Belt & Road Research at Shanghai Conference
  3. ECPAFood waste in the field can double without crop protection. #WithOrWithout #pesticides
  4. EU2017EEEstonia Allocates €1 Million to Alleviate Migratory Pressure From Libya in Italy
  5. Dialogue PlatformFethullah Gulen's Message on the Anniversary of the Coup Attempt in Turkey
  6. Martens CentreWeeding out Fake News: An Approach to Social Media Regulation
  7. European Jewish CongressEJC Concerned by Normalisation of Antisemitic Tropes in Hungary
  8. Counter BalanceOut for Summer Episode 1: How the EIB Sweeps a Development Fiasco Under the Rug
  9. CESICESI to Participate in Sectoral Social Dialogue Committee on Postal Services
  10. ILGA-EuropeMalta Keeps on Rocking: Marriage Equality on Its Way
  11. European Friends of ArmeniaEuFoA Director and MEPs Comment on the Recent Conflict Escalation in Nagorno-Karabakh
  12. EU2017EEEstonian Presidency Kicks off Youth Programme With Coding Summer School