Divisions in Europe over a new regime to supervise banks overshadowed fresh attempts by EU finance ministers on Tuesday to agree a centrepiece reform that some officials fear could now unravel. So far, countries in the eurozone have attempted to contain the financial crisis with piecemeal measures.
--- UK and Germany push for limits on ECB as bank watchdog
The banking union would be a cornerstone of wider economic union and the first concerted attempt to integrate the bloc's response to problem lenders to win back confidence. Finance ministers and officials from the bloc's 27 countries met in Brussels to attempt to advance talks on divisive questions such as the scope of the European Central Bank's cross-border supervisory powers, which would be a first step in a banking union.
At a news conference with Germany's Wolfgang Schaeuble, French finance minister Pierre Moscovici said agreement could be reached soon. "Work continues for a few more weeks to reach a definitive agreement, but France and Germany aim to reach the same objectives with the same calendar, the same method," he said. Critical remarks from other countries painted a different picture.
Sweden flagged what it believes to be a fundamental flaw in the plan - that there is no way of allowing non-euro states join the scheme on an equal footing with those using the currency. It raised the prospect of a laborious change to EU law to set up the system. "The ECB could be the supervisor but then we need to consider a treaty change," Swedish Finance Minister Anders Borg told reporters. "Either you must change the treaty so it's clear that every member is treated equitably or you need to move it (supervision) outside of the ECB."
His concerns were echoed by Austria's finance minister, who said countries outside the euro that want to join the scheme, needed to be put on a par with euro states. This will be difficult as bank supervision will be run by the ECB and it is answerable only to the 17 countries using the euro. "Non-euro members also want to participate and want to have equal participation procedures," Maria Fekter told peers, in comments broadcast on television, adding: "It could also be a question if the treaty change would be the better solution."
The remarks will add to the concerns in Brussels that the construct is already crumbling in the face of powerful opposition both within and outside the euro. Germany, the leading economy in the euro zone, wants the ECB's oversight restricted to top banks while Britain, the biggest country outside the euro, wants to stop the central bank from taking decisions that infringe on its interests.
Making the ECB the supervisor for lenders chiefly in the 17 countries that use the euro would be the first of three pillars in a banking union and one EU leaders have committed to complete by the year-end. When supervision is in place, it would allow the euro zone's rescue fund, the European Stability Mechanism, to help troubled lenders directly rather than via their governments, breaking with the previous ad hoc approach where smaller states such as Ireland were left to solve their banks' problems alone.
Complementing this new regime of supervision with two additional pillars - a central scheme to wind down banks and a combined means of deposit protection to prevent bank runs - would complete the banking union, underpinning lenders and the euro currency.
Some officials in Brussels are growing increasingly alarmed by British and German opposition. "We don't want a banking supervisor that doesn't have any teeth," said one official. "It should not be a co-ordinating body. The final decision must be made by the ECB and that goes for small banks as well as systemic ones."
Britain has proposed a means for countries outside the banking union to stop the ECB taking decisions that could affect their interests. Since Britain would dominate this group, many countries see this as London effectively demanding a veto and oppose it.
Germany, which wants to keep primary oversight of the country's community savings banks, is pushing to limit the ECB's remit to systemically important banks. It is also worried that the more banks are included in the scheme, the higher the potential cost when, as is ultimately planned, supervision is backed up by a central fund to pay for the closure of troubled lenders. Germany, Europe's largest economy, would have to foot a large part of any such bill.
The EU ministers also discussed new rules governing the amount of capital banks must set aside to cover unpaid loans and other risks as well as a proposal, backed by Germany but opposed by Britain, to cap bankers' bonuses at three times their salary. Late-night talks on Monday between country diplomats and lawmakers from the European Parliament about those rules failed to reach an agreement, according to one person who attended.
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