German banks resist EU plan for regulator

IRELAND’S ROAD to securing bank debt relief from its European partners faces another hurdle from Germany.

Amid ongoing disagreements over a possible European Stability Mechanism buy-up of old bank debt, Berlin has insisted EU leaders agree to hold off on recapitalisation until a European banking regulator is up and running. Such a move has met vociferous opposition from Germany’s huge public savings bank network, the Sparkassen.

“The lovely word ‘banking union’ masks a redistribution mechanism, where sound [banks] are tapped so that the unsound don’t have to substantially change their business model,” said Georg Fahrenschon, president of the Sparkassen Federation (DSGV).

The Sparkassen, with 400 individual banks and more than €3 trillion on deposit, are in every German city, town and village. This reach and financial might is matched by political clout: their message is being heard.

Germany has already dismissed as illusory European Commission plans to have a regulator operating by the start of 2013. Berlin also disagrees with the Brussels proposal for a big-bang regulator overseeing all euro zone banks.

Instead, Germany favours an ECB-based regulator supervising Europe’s top-25 “systemic banks” – which would exclude the decentralised Sparkassen network.

“It’s about the quality of the supervision, not just about the quantity,” said chancellor Angela Merkel earlier this month.

Even when leaders agree on a compromise model, the Bundestag raised legal questions about Berlin’s plans to use powers under the European treaties to bypass parliament and transfer banking regulation competences from national to European level directly.

But German MPs, from the Lisbon Treaty to EU bailout funds, have proven effective and energetic at clawing back their parliamentary rights from the federal government – assisted by the constitutional court in Karlsruhe.

For a quiet life, and to avoid a drawn-out constitutional dispute, Berlin may decide to put a vote on transferring banking oversight to the EU before the lower house.

This is where the real problem begins. While the scandal-hit, state-owned Landesbanks are shrinking, the Sparkassen – bankers to German families and small businesses – are in rude health. They have launched a massive campaign against plans for a European banking union.

In full-page newspaper advertisements, the Sparkassen insist they did not cause the euro zone crisis and do not want to be forced into an EU oversight regime or, worse, an EU-wide deposit guarantee fund. Few politicians are interested in crossing them.

“In small towns every park bench and school competition is sponsored by the Sparkasse,” said one politician from the ruling Free Democratic Party, which commissioned the Bundestag’s banking regulator analysis.

“A politician in Germany who votes against the wishes of Sparkassen does so at his peril.”

Irish hopes for debt relief depend on appetite in all EU member states for an effective European banking union. In Germany it may depend on the readiness of 620 MPs facing re-election next year to lock swords with the influential Sparkassen network.