Finance ministers fail to agree over ECB supervisory powers
Germany has hardened its stance in talks to give the European Central Bank new powers to supervise banks, prompting fresh doubt over the push to finalise the new regime by the end of the year.
The initiative is a precondition for the ESM bailout fund to be given the right to rescue stricken banks directly, a core demand of the Government as it pushes for debt relief.
This element of the Government campaign is already in trouble given the reluctance of Germany, Finland and the Netherlands to allow the ESM to bear historic banking losses.
The failure to agree on the new ECB powers presents a further complication.
Talks between finance ministers ran aground yesterday and they scheduled a further meeting next Wednesday in a new attempt to settle the matter before a summit one day later.
However, diplomatic sources said the tough position set out by German minister Wolfgang Schäuble raised questions as to whether Berlin would be ready to compromise next week.
The new ECB powers are the first part of the euro zone “banking union” initiative, whose aim is to sever the loop between bank and sovereign debt.
When they decided to go down this road in June, EU leaders aimed to rush through the legislation in record time to demonstrate their determination to overcome the debt crisis.
There is concern that any failure to strike a deal could jeopardise relative calm on financial markets. “I would want to stress that if this decision did not happen that would be bad in term of market reactions,” ECB vice-president Vitor Constâncio told the meeting.
With the negotiation in its sixth month, Mr Schäuble told the meeting that a “new solution” was now required given his concern that the ECB should not be given the final say in bank supervision.
In a nod to German concerns that an intrusive European supervisor would force action on the country’s network of savings banks, he said national bodies should retain responsibility for most banks.
“The right of the last decision cannot be left to the ECB governing council – then we would not have a Chinese wall. And that is very essential,” Mr Schäuble told the meeting. “A Chinese wall between banking supervision and monetary policy is an absolute necessity.”
The German position is not the only bar to a deal. Non-euro countries such as Sweden are concerned that the plan would see the ECB dominate decision-making at the European Banking Authority, a separate body which will retain important regulatory powers in the new dispensation.
The notion of a supervisory committee separate to the ECB – participating in its work, without having the power to veto its decisions – was raised yesterday.