French prioritisation of EU banking union fuels tensions with Germany


THERE WAS no concealing the friction between Angela Merkel and François Hollande as EU leaders gathered last evening to reignite the halting battle against the debt emergency.

Only hours after the German chancellor issued a clarion call in Berlin for EU institutions to be given authority to veto national budgets, the French president said this question was not even on the summit agenda.

In defiance of Dr Merkel’s markedly cautious stance on the banking element of the crisis, Mr Hollande said in Brussels that the requirement for rapid progress on this question must be the immediate priority.

He also accused the chancellor of delaying progress for electoral reasons, a barbed claim that marks a new low in recent Franco-German relations.

The escalating divisions are in contrast to Dr Merkel’s sometimes strained but robust alliance with Mr Hollande’s predecessor Nicolas Sarkozy, with whom she set the pace and tone of the response to the first phase of the crisis.

Since his election in May, the new French president has emerged as a key ally of Taoiseach Enda Kenny as he seeks a deal to ease the burden of Ireland’s bank debt. “The topic of this summit is not the fiscal union but the banking union, so the only decision that will be taken is to set up a banking union by the end of the year and especially the banking supervision,” Mr Hollande said.

“There have been proposals to strengthen budgetary union which we can take up later but, for the moment, the order of the day of this summit is to put in place a banking union.” Mr Hollande insisted a workable plan to resolve the crisis was in place and that the most important issue now was to implement decisions quickly.

“We are in a phase where we have all the elements necessary to emerge from the euro zone crisis and open a new perspective . . . On the banking union, and soon on Spain and Greece, we are going to solve those problems.”

While Mr Hollande’s approach chimes with that of Mr Kenny and the leaders of Spain and Italy, Dr Merkel has staunch support in Finland and the Netherlands.

The strains between Paris and Berlin come as EU leaders confront German-led demands for deeper economic integration, and the clamour from countries such as Ireland and Spain for the mutualisation of banking debt.

Although discussions are under way on measures to expand the powers of EU bodies to intervene in national economic policy, officials involved in the summit insist the primary objective is to achieve consensus on when the European Central Bank will take on responsibility for bank supervision. This is crucial for Ireland.

Numerous other technical questions remain to be resolved, however. These include mechanisms to separate monetary policy within the ECB from its supervisory functions. Also to be settled are the concerns of non-euro countries such as Britain and Sweden that they will be squeezed out of decision-making within the European Banking Authority, which will retain important regulatory functions in the new regime.