Berlin dampens expectations of banking union agreement

Germany has dampened expectations of any significant agreements at today’s EU summit but denied it was contributing to the political slippage.

With reform pressure retreating for now, Berlin indicated it was in no hurry to reach agreement on a banking union, a pre-condition for a June deal to break the link between banking and sovereign debt.

Instead German officials indicated they were more interested in talks about talks, “organising and structuring work for the next four to six months”.

German officials back a proposal by European Council president Herman Van Rompuy for fiscal controls through “contractual arrangements” between member states and the Commission.

But it has ruled out his idea of a “fiscal capacity” euro zone fund to aid crisis countries and is pressing instead for progress on competitiveness-boosting measures – and new instruments to measure progress on this front.

“Everyone wants to talk how to spend more money while the core of the problem – how to boost competitiveness that leads to growth and jobs – interests no one even though this is the core of the problem,” said a senior Berlin official.

German opposition parties laid the blame at Berlin’s door for the throttling of the pace of European reform, particularly on banking union proposals.

“The German government has a very cautious, destructive approach, to not create the conditions for this banking union,” said Peer Steinbrück, Social Democrat (SPD) challenger to Chancellor Angela Merkel. “If the government wants to put this off until after the general election it will lead to turbulence.”

Together with the Green Party, he presented a paper yesterday calling for a bank-financed rescue fund to end “blackmail” of taxpayers.

In future crises, the SPD/Green proposal would see banks’ owners and creditors absorbing losses first, and then a €200 billion fund financed by banks themselves.

Mr Jürgen Trittin, Bundestag leader of the Greens, said it was “time to finally say goodbye to forced taxpayer liability for bad management in the banking system”.

But he was quick to dampen any expectation that this proposed fund could be tapped retrospectively to refund the €64 billion of Irish taxpayer money used to pay back its creditor banks.

“The Irish chose their own bad luck with decades-long regulation- and tax-dumping,” he said. If this tax issue is addressed, he said, “we would say clearly that we want to prevent future crises for the Irish”.