Saturday

8th Aug 2020

Draghi says EU bank union to break 'vicious' circle

Legislation for a eurozone banking union will restore economic confidence and break the link between banks and public debt, Mario Draghi, President of the Frankfurt-based European Central Bank (ECB), has told MEPs.

Speaking at his quarterly hearing with the parliament's economic and monetary affairs committee on Monday (17 December), Draghi said that "combined with possible direct recapitalisation of banks by the European Stability Mechanism (ESM) and an envisaged single resolution mechanism the SSM [Single Supervisory Mechanism] will go a long way towards breaking the vicious feedback loops between sovereigns and banks."

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

The "ECB will have supervision over all banks ... with something of the order of 130-150 banks under direct supervision," he added.

Talks between ministers and MEPs on the first planks of banking union legislation will begin on Tuesday (18 December) in a bid to agree on the legal framework early in 2013.

According to a deal struck by finance ministers in Brussels last week, the SSM will give the ECB oversight on the eurozone banking sector from March 2014. Attention is then expected to shift in 2013 towards adopting legislation to harmonise national deposit guarantee schemes and to create a bank resolution mechanism.

Draghi's remarks came against the backdrop of fresh scepticism from Germany about the banking union plans.

A legal opinion by the Bundesbank warned that the deal agreed by ministers in Brussels last week lacked "a long-term solid legal basis."

Meanwhile, Bundesbank chief Jens Weidmann said that he was "not convinced that the ECB council is the optimal authority to decide when a bank has to be closed down or not."

Speaking at the hearing in Brussels, German Christian Democrat MEP, Werner Langen, said that ECB control over the entire eurozone banking sector is "hard to stomach" and would impinge on the role of domestic regulators.

The ECB chief also refuted claims that the bank's supervisory role would create a conflict of interest with its decisions on monetary policy.

"The ECB's involvement in financial supervision has no bearing whatsoever on our primary objective of price stability," he said, adding that a newly created supervisory board would have an independent chair and vice-chair.

"Banking supervision and monetary policy must be rigorously separated," he added.

Draghi painted a stark picture of the weakness of the eurozone economy, commenting that "we expect economic weakness to extend into next year with a very gradual recovery in the second half of the year."

He also called on governments to pursue structural reforms.

"Economic reforms bear fruit, even if, in the short term, the costs to individual citizens can be considerable. But the reforms are the rights path. Governments should persevere," he said, pointing to data indicating that exports of goods and services from Spain, Ireland, Italy and Portugal had recently increased by between 14 percent and 27 percent.

But for her part, Elisa Ferreira, the Socialist group spokesperson on the committee, said that the profits from the ECB's bond-buying programmes should be pumped back into the weaker EU countries.

She also urged the ECB to back "a softer implementation" of domestic austerity regimes.

Draghi seeks to allay German concerns on banking union

European Central Bank chief Mario Draghi sought to downplay a clash of views with the German government over the scope of a new banking supervisor by suggesting a bigger role for national supervisors when it comes to small regional banks.

EU summit lays out next steps for banking union

EU leaders have agreed to take further steps towards banking union including the legal minefield of how to wind up ailing banks and make sure the tax payer does not foot the bill.

Top EU officials urge MEPs give quick budget-deal approval

MEPs criticised the EU deal on the budget and recovery package clinched by leaders after five days of gruelling talks, saying it is not enough "future-oriented", and cuts too deeply into EU policies, including health, innovation, defence and humanitarian aid

EU Parliament gears up for fight on budget deal

European parliament president David Sassoli said certain corrections will have to be made in the budget, citing research and the Erasmus program for students, calling the cuts "unjustified".

News in Brief

  1. Germany breached rights of Madeleine McCann suspect
  2. EU offers trade perks to Lebanon
  3. Germany charges four ex-Audi chiefs on emissions cheating
  4. UK quarantines Belgium, as European infections climb
  5. Bulgaria's Borissov mulls resignation
  6. EU prolongs anti-dumping duties on Chinese steel
  7. Swedish economy contracted less during April to June
  8. EU offers help to Lebanon after port explosion

EU forecasts deeper recession, amid recovery funds row

The economies of France, Italy and Spain will contract more then 10-percent this year, according to the latest forecast by the EU executive, as it urges member state governments to strike a deal on the budget and recovery package.

Stakeholders' Highlights

  1. UNESDANext generation Europe should be green and circular
  2. Nordic Council of MinistersNEW REPORT: Eight in ten people are concerned about climate change
  3. UNESDAHow reducing sugar and calories in soft drinks makes the healthier choice the easy choice
  4. Nordic Council of MinistersGreen energy to power Nordic start after Covid-19
  5. European Sustainable Energy WeekThis year’s EU Sustainable Energy Week (EUSEW) will be held digitally!
  6. Nordic Council of MinistersNordic states are fighting to protect gender equality during corona crisis

Latest News

  1. Iraqis paid €2,000 each agree to leave Greece
  2. EU's most sustainable islands are Danish 'Sunshine Islands'
  3. Worrying rows over future EU chemicals policy
  4. Rainbow flag protesters charged by Polish police
  5. An open letter to the EPP on end of Hungary's press freedom
  6. Renew Europe has a plan to combat gender-violence
  7. Why EU beats US on green pandemic recovery
  8. Azerbaijan ambassador to EU shared anti-George Floyd post

Join EUobserver

Support quality EU news

Join us