Saturday

28th May 2016

Analysis

Germany out on top after late-night summit

  • The German Bundestag will have a say each step of the way when setting up the banking union (Photo: BriYYZ)

EU leaders left Brussels Friday (19 October) after having spent the best part of the meeting tweaking wording on a banking union that was supposed to have been clear in June.

They went back to their hotels at a bleary-eyed 3am on Friday. But for all the lengthiness, the end result was practically the same for Berlin - the European banking supervisor will not be up and running any time soon.

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The issue is key. Without the supervisor, the eurozone bailout fund will not be allowed to directly recapitalize ailing banks.

Speaking after the summit, German Chancellor Angela Merkel - who has been pushing for more fiscal discipline among member states before she will accept opening up German coffers - said that there was a clear order of tasks to follow.

A legal basis should be set out by the December meeting of EU leaders, with finance ministers tasked to do the job.

Then comes the building up of the supervisory authority. Only when this is “able to work” can direct bank recapitalization begin.

While the concluding statement says that “work on the operational implementation will take place in the course of 2013” there are many potential pitfalls on the way.

Merkel acknowledged as much saying that alone trying to have a legal framework in place by 1 January 2013 is “very ambitious.”

Then there have to be negotiations with the European parliament. And then up to 300 staff will be needed for the new body.

“These people have to be found. They have to be employed," said the chancellor.

It is also still unclear how the new supervisory authority would work with the existing European Banking Authority - a body co-ordinating work of all EU national supervisors - or how to deal with non eurozone countries that have banks in euro countries.

Meanwhile not all of the 6000 eurozone banks are equal. They will be supervised in a “differentiated” manner, with some remaining under the oversight of national authorities.

And aside from the legal and political questions at the European level, there are potential domestic hiccups. Each step of the way, Geman MPs will have to give the green light

According to Merkel, they will have their say when the legal framework is produced, when the supervisory body is considered up and running and when it comes to requests for the eurozone bailout fund (ESM) to recapitalise banks.

There has been much speculation about whether the chancellor is delaying the banking union question until after the general election next September. She herself noted that one expert suggested the functioning supervisory authority would probably be in place only at the beginning of 2014.

But Merkel said she had "never even thought about that."

Still there was a burst of laughter when she mistakenly said that the banking supervisor would not be in place before 2030. She quickly corrected herself to 2013.

Finance ministers baulk at tax-avoidance rules

Member states will discuss again in June a proposed directive to outlaw practices used by large companies to avoid paying taxes. Meanwhile, the European Parliament makes progress on its probe of Panama Papers.

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