Saturday

23rd Jun 2018

EU bank supervision to come to life next year

  • The deal is a mere re-affirming of an earlier agreement reached in June (Photo: The Council of the European Union)

EU leaders in the early hours of Friday (19 October) agreed that a eurozone banking supervisor should come into life next year, opening the way for troubled banks to access bailout money directly.

The deal is little more than a reaffirmation of an earlier agreement reached in June.

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The EU countries set an "objective" of drafting a legal blueprint for the new structure, which is to be embedded in the European central Bank (ECB), by 1 January 2013 and of launching the body "in the course of 2013," the EU Council conclusions say.

EU diplomats are sceptical the timeline can be kept to however, especially since the European Parliament also needs to give its approval.

"It's like saying earlier than never, but later than now," one source said.

The marathon EU meeting, which ended at 3am local time, was held up by protests from non-euro countries whose banks can opt-into the supervisory mechanism, but whose decision-making powers are to be limited.

Germany and France entered the meeting at loggerheads.

But divisions during the talks were primarily between the euro "ins" and "outs," French President Francois Hollande told press after the event.

"We [France and Germany] were on the same page, to ensure that the legal framework can be adopted by the end of the year," he said.

"An EU deal is always a compromise ... Some said we want it quick, Germans want quality. The compromise is both and we have a good deal tonight."

Speaking in a neighbouring press room, German Chancellor Angela Merkel said the new supervisor would take just "a few months" to get up and running after the 1 January law is in place.

She noted that the possibility for banks to tap bailout money can be considered only then.

Thursday's deal reflects a change of mind on Spain's funding problems.

Back in June, Germany said the supervisor is a precondition for rescuing Spain's banks using the bailout fund, the ESM.

EU officials at the time explained that once the new architecture is in place, Spain's €100 billion bank bailout could be taken off the government's books and transferred to the ESM fund.

But over the summer the ECB found another solution when it agreed to buy bonds from countries under market pressure if they sign up to a reform programme.

"It is not a defeat for Spain," Hollande said.

He added that Spain's banks will be able to tap the bailout fund "in future" but that this need is taken care of for now by the €100 billion bailout agreed in June and that there is always the possibility to ask for further assistance which would trigger the ECB bond-buying scheme.

"It's up to Spain to ask for it and there would be no reason for extra conditions, to impose more austerity on austerity," Hollande said.

Spanish Prime Minister Mariano Rajoy on his way out noted that there was "nothing at all" during the summit about a Spanish state bailout request.

Bilateral contracts

The summit also tackled more long-term ideas for eurozone integration.

A timeline for the reforms, mooted in a paper by EU Council chief Herman Van Rompuy ahead of Thursday's meeting, is to be agreed in December.

But EU leaders already said that if there is to be a separate EU budget for eurozone states it should not be to the detriment of the EU27 budget.

They added that discussions on the new fund should be completely insulated from talks on the next EU budget for 2014-2020.

In exchange for German support for this "solidarity facility" - as German Chancellor Angela Merkel called it - leaders also tasked Van Rompuy to further explore the idea of making reform promises more binding.

They said he should look into "individual arrangements of contractual nature with the EU institutions."

But for Hollande, the current set-up of budgetary surveillance and discipline is sufficient.

He said no further steps need to be taken unless leaders agree to introduce eurobonds - a common pooling of debt.

Hollande added that Merkel's idea of creating a super-commissioner for eurozone fiscal affairs is "totally respectable."

But he said it would require EU treaty change, juts like the eurobond move.

Analysis

Germany out on top after late-night summit

EU leaders left Brussels Friday after having spent the best part of the meeting tweaking wording on a banking union that was supposed to have been clear in June. But the German slower timetable prevailed.

Analysis

Parliament bares teeth on ECB

The ECB should not make an enemy of the EU parliament as the power of both institutions grows.

Ministers at odds on banking supervision

Ministers remained at odds on how to include non-euro countries in a planned banking supervision scheme, threatening a 1 January deadline.

Opinion

The risks behind the 'green bond' boom

The EU should not overuse the financial system in order to achieve environmental goals, or it risks the emergence of a green bond bubble which would be detrimental to the financial sector and hinder the achievement of climate targets.

Opinion

Eurozone needs institutional reform

Both the examples of Greece and Italy test the limits of a system with inherent weaknesses that feeds internal gaps, strengthens deficits and debts in the European South, and surpluses in the European North respectively.

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