The EU Commission called on Saturday for swift joint oversight of all euro zone banks, taking another step in the bloc's drive to stem its long crisis following the European Central Bank's plan to buy bonds of weak member states. Michel Barnier, the European Commissioner in charge of financial regulation, said in a Reuters interview that euro zone-wide banking supervision should be introduced by next January, despite German reservations.
Speaking at the same conference as Barnier on the shores of Lake Como in northern Italy, EU Economic Affairs Commissioner Olli Rehn said the terms and conditions underpinning the ECB's bond buying plan would be based on existing recommendations for countries like Spain and Italy. He appeared to be backing remarks by ECB executive board member Benoit Coeure who told France Inter radio that countries applying for the bond buying help would not necessarily have to make extra cuts - a major concern in Spain and Italy where austerity programmes have aggravated deep recessions. The idea of the programme was not to "pile more austerity on top of austerity" he said.
Barnier said the EU Commission's banking sector plan envisaged centralised supervision for all 6,000 euro zone lenders, large and small, though oversight of some day to day matters, such as elements of consumer protection, would remain with national authorities. "We know that all banks can cause problems. For this reason the logic of our proposals and the requests from the euro zone heads of state is to have a credible oversight of each bank in the euro zone," Barnier said on the sidelines of a gathering of business leaders, politicians and EU officials in the lakeside resort of Cernobbio.
"Germany voiced concerns we can understand. They are the (financial) largest contributor," he said, but added that he hoped Berlin would still support the plan as it favoured a sound banking oversight. EU finance ministers are meeting in Cyprus next week to discuss centralised banking supervision. German Finance Minister Wolfgang Schaeuble has expressed reservations, saying the ECB should only supervise big banks.
He has also expressed doubts the EU can put in place such a mechanism by the January 2013 deadline. But Barnier said on Saturday that creating such overarching supervision in just over a year was "necessary and do-able." ECB President Mario Draghi unveiled plans on Thursday for potentially unlimited purchases of bonds with maturities of up to three years issued by countries that request European aid and fulfil strict domestic policy conditions.
Rehn said the conditions would be based on existing country-specific recommendations and "would have to include very specific objectives and a time-line on how to meet the objectives." No countries have yet applied for help from the yield reduction plan, he said. Italian Economy Minister Vittorio Grilli told reporters at the Cernobbio conference that Italy did not plan to sign up.
"We have no intention to apply for these kind of programmes," Grilli said. "We have absolutely no need." Grilli said Italy was on the right road to mend its debt-laden, stagnating economy "but the difficulties are evident to everybody... We absolutely cannot say we are satisfied yet."
There are concerns inside and outside Italy that a new government to be elected in polls next spring could try to renege on some of the painful debt-cutting reforms imposed by the technocrat government headed by Mario Monti. The government is trying to lock Italy into those changes so that backsliding will be difficult even under a new government of politicians sensitive to increasing public opposition to the economic pain.
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