Italian crisis a reminder that threat not over
EUROPEAN DIARY:Any banking union deal would be lightning-quick in Brussels terms, writes ARTHUR BEESLEY
Taoiseach Enda Kenny travels to Brussels today for the seventh and final EU summit of the year. As Germany angles for time on many of the key questions, this could be another tense affair.
At issue primarily are contentious new steps to advance the “banking union” plan and yet more moves to sharpen Europe’s writ in domestic fiscal policy.
After an autumn of relative calm in financial markets, any failure to settle the expected decisions might be seen as evidence that a lull in the crisis is encouraging leaders to slack off on reform.
“There hasn’t been the same sense of imminent apocalypse as there was,” says a senior European diplomat.
But the summit, which continues tomorrow, takes place amid renewed market tension over the political turmoil in Italy. As the fourth year of the debt emergency beckons, this serves as a hardy reminder of the brooding threat which still endangers the single currency.
On the banking union, two questions dominate.
First is whether the summit can sign off on new powers for the European Central Bank to supervise commercial banks. This is crucial for Ireland, given that the new arrangement is a precondition for any direct bank recapitalisations by the ESM fund.
European Council president Herman Van Rompuy wants the summit to set a March deadline for agreement on the parameters of any ESM rescues. Germany and the Netherlands are expected to dispute that. These countries don’t want the EMS to bear historic or legacy debts, something Dublin wants.
The question of the ECB powers is in the bailiwick of finance ministers, who were meeting in Brussels last evening for the fifth time in as many weeks.
Despite an outburst of last-minute cavilling by Germany over the separation of monetary policy in the ECB from bank supervision, agreement is close. Should the ministers fail, it is unlikely that the issue will go to the summit. More likely is that the ministers would return to Brussels again next week.
A deal is expected sooner or later, and that would still represent decision-making at the speed of light in Brussels terms. The EU Commission introduced the draft legislation only three months ago. It typically takes 18 months to conclude such a process.
The second big issue is whether the leaders give the go-ahead for the development of a pan-European authority to resolve stricken banks. For obvious reasons, this too is of big interest to Ireland. The essential objective is to centralise the management of banking crises at minimal cost to taxpayers.
The basic aim is that shareholders and bondholders would be the first to bear the cost of cleaning up a defunct bank, with funds compulsorily set aside by banks themselves and/or transaction tax proceeds being used as a last resort.
These are noble aspirations, but a snag remains. There won’t be enough money from such sources for years, prompting talk of using ESM money as a crisis backstop in the first instance.
This, in turn, raises familiar knotty questions over the political feasibility of measures.
A step too far for Germany and its triple-A allies? Certainly. Indeed, it is difficult to imagine any change of heart in Berlin before the election next September.
Separate from all of this but related to it are new measures to deepen the reach of the single currency system. This is known as the “GEMU” plan, the move towards a “genuine economic and monetary union”. This too is tricky. Van Rompuy wants euro zone countries and any willing participant to enter “contractual” arrangements with the European authorities on their economic policy.
This can be done within the framework of the EU treaties as they stand. But questions abound as to the scope of the endeavour and precise nature of the contractual obligations and their enforcement.
At the same time, countries like Ireland, France and Italy would prefer to see a reciprocal commitment to examine commonly-issued eurobonds in return.
There is no mention of that in Van Rompuy’s proposal, something which can be seen as a nod to objections in Berlin.