Push to create euro zone 'banking union'

Mon, Jun 25, 2012, 01:00

GLOBAL CENTRAL bankers backed the formation of a “banking union” in the euro zone as Germany issued a blunt warning to Greece to stop seeking more help from Europe.

The hard line from German finance minister Wolfgang Schäuble came as the new Greek government sought a deep revision of the country’s EU-IMF programme.

Due to illness, neither Greek prime minister Antonis Samaras nor incoming finance minister Vassilis Rapanos will attend a key European summit that starts in Brussels on Thursday.

Mr Samaras is recovering from eye surgery and Mr Rapanos has been in hospital since Friday with intense abdominal pain, dizziness and nausea.

A new mission to Athens by the EU-IMF troika, expected today, has been postponed. The foreign minister and the outgoing finance minister will attend the summit.

In defiance of Greece’s deal with the troika, Mr Samaras’s programme for government calls for tax cuts, a freeze on public sector redundancies and an additional two years to correct the budget deficit.

Such demands go far beyond the changes deemed feasible in European circles, where officials suggest Greece may receive a little leeway but no fundamental revision.

“The most important task facing Samaras is to enact the programme agreed upon quickly and without further delay instead of asking how much more others can do for Greece,” Mr Schäuble told the Bild am Sonntag weekly.

“It’s in their hands to win back the confidence of the people of Europe. They’re only going to accomplish that with concrete actions and deeds.”

Ahead of the summit, four European leaders are finalising keenly awaited reform proposals to safeguard the single currency and overcome the debt emergency.

Herman Van Rompuy, José Manuel Barroso, Mario Draghi and Jean-Claude Juncker plan to send their findings to government leaders tonight.

These “wise men” – respectively the leaders of the European Council, the EU Commission, the European Central Bank and the euro zone finance ministers – were asked at the last summit to produce a plan to reinforce the euro. An informed source said the report will examine the feasibility of a pan-European bank deposit guarantee scheme and common euro zone system for the rescue or “resolution” of failing banks.

Such measures are opposed by Germany, which is under pressure to intensify its response.

The report will also scrutinise the development of a fully fledged euro zone fiscal union, something which may necessitate changes to the EU treaties and which could lead to another Irish referendum.

The push for a banking union has received the endorsement of the Bank for International Settlements, the leading forum for the world central bank chiefs.

In its annual report yesterday, it said a full resolution of the debt crisis requires stronger institutional foundations.

“The conclusion is hard to escape that a pan-European financial market and a pan-European central bank require a pan-European banking system,” it said.

“Put slightly differently, a currency union that centralises the lender of last resort for banks must unify its banking system. Banks in Europe must become European banks.”

Suggestions for movement on the banking front were “promising” and offered the prospect of progress, the Bank for International Settlements added.

“First, they would unify banking rules now fragmented along national boundaries. Second, common banking rules would centralise responsibility in a common regulator, supervisor, deposit insurer and resolution authority.

“If adopted, these measures will break the adverse feedback between the banks and the sovereign and other destructive links that are making the crisis so severe. They will revive interbank lending and sovereign access to funding markets.”

Such views echo those of the IMF and many other euro zone countries but not Germany.