Merkel backs calls for European 'banking union'

Tue, Jun 5, 2012, 01:00

GERMAN CHANCELLOR Angela Merkel has backed calls for the creation of a European “banking union” to regulate systemic European banks – but not if it opens the door to mutualised euro zone debt.

Amid growing euro zone concerns over Spanish banks, Berlin signalled to Madrid that any external assistance it might need would have to come from existing euro zone bailout funds, under existing rules.

“The world wants to know how we conceive the political union that will accompany monetary union,” said Dr Merkel. “We have to provide an answer to this question in the foreseeable future.”

She was hosting European Commission president José Manuel Barroso in Berlin last night to discuss “to what extent we need to put systemic banks under a specific European supervisory authority”.

Mr Barroso agreed that Europe needed “more integrated financial supervision and also more integrated deposit guarantees”.

In Brussels, meanwhile, economic and monetary affairs commissioner Olli Rehn had a very different interpretation of a banking union: it should begin work with a modified ESM bailout fund, permitted to lend directly to euro zone banks rather than through governments.

“We have been considering this as a serious possibility of breaking the link between the sovereigns and the banks,” said Mr Rehn. “It is important to consider this alternative of direct bank recapitalisation.”

Senior German officials insisted yesterday there were “many definitions of a banking union” and, while it was too early to say which definition would prevail Berlin would not back any that resulted in mutualised debt. Berlin declined to comment on reports that it was leaning on Madrid to accept a bailout to fill a capital gap in its banks.

“Spain needs clarity on the [banking] issue, as does Europe,” said a German government spokesman. “It would have been better if this had happened earlier. Europe is ready to help and has the means to help, but the decision is Spain’s alone.”

In Madrid, Maria Dolores de Cospedal, the deputy leader of Spain’s ruling People’s Party, insisted that “Spain is capable of getting out of this on its own”.

Senior German officials confirmed yesterday that EU leaders were beginning talks on a new European treaty wile the fiscal pact continues to be ratified across Europe.

This month’s EU summit is expected to review proposals by European Commission president Herman van Rompuy, arising from talks with Mr Barroso, Euro Group head Jean-Claude Juncker and ECB president Mario Draghi.

“The June summit is about structuring the debate, assigning tasks and agreeing on a method by which Europe asks itself questions,” said a German source. “One shouldn’t expect a big-bang solution, rather an opening shot. But then the topic is on the European agenda, though, and that is quite a lot.” Days after the referendum on one treaty, Irish officials were less than enthused yesterday at the prospect of another.

Nevertheless, sources said the Government was anxious to take advantage of the “evolving” banking debt debate if it helped secure a better deal for Ireland.

An Irish official said the Government would be “alive to any opportunity” to push its cause and will insist that any potential ESM rule changes to assist Spain would apply retrospectively to Ireland.

Berlin is anxious to avoid any signal that Ireland’s EU/IMF programme is up for negotiation ahead of this month’s Greek election re-run. On the domestic front, German officials say it would be impossible to explain additional bailout payments to cover the bank debt of a country Dr Merkel holds up as proof that her austerity demands are working.