Germany may prove right rejecting Commission’s bank resolution scheme

ECON Committee meeting discussion with Commissioner Michel Barnier in charge of Internal Market and Services (on the right) on bank reform. In the Chair, Arlene McCarthy (S&D, UK) (in the middle), (European Parliament Audiovisual Services, 16/09/2013).

ECON Committee meeting discussion with Commissioner Michel Barnier in charge of Internal Market and Services (on the right) on bank reform. In the Chair, Arlene McCarthy (S&D, UK) (in the middle), (European Parliament Audiovisual Services, 16/09/2013).

Commissioner Michel Barnier, responsible for financial services, had a rough time yesterday at the Economic and Monetary Affairs Committee (ECON) of the European Parliament, when he told the legislators that the Commission will press ahead with its proposal about the creation under its own roof of the Single Resolution Mechanism (SRM) for Eurozone’s failing banks. He stressed that this can be done without a change in the Treaty of the European Union and added that the EU can insert a relevant amendment in the text of the new Treaty, whenever there will be one. Germany has already expressed its strong disapproval for the creation of an SRM as the Commission wants it without a change in the Treaty.

The questions the MEPs asked Barnier obviously doubted the legality and the soundness of the Commission’s proposal. They also questioned the viability of the source of funds to be used in eventual resolutions of Eurozone banks. The Committee will have an initial detailed discussion of the Commission’s proposed legislation this morning. The negative climate that prevailed yesterday in the ECON Committee doesn’t leave much hope that the Commission’s proposal will have an easy time either. Tough questions come from across the political spectrum.

Second blow

This is a second blow this proposal takes in a matter of a few days. Last Friday during the first meeting of the ECOFIN council, after the summer vacations that took place in the Lithuanian capital Vilnius, there was only a vague reference to this burning issue. There were no reports at all whether the SRM was discussed in the Eurogroup council, which is made up by the 17 ministers of Finance of the euro area countries and presumably it’s them who care most about the issue. Not even Michel Barnier, who was present in Vilnius said anything in public about it. The conclusion was that nobody wanted to discuss openly this issue during last weekend in the Lithuanian capital.

Coming back to ECON Committee’s session, Barnier faced yesterday key questions by legislators about this Commission’s proposal on the SRM. Before presenting that it must be noted that the creation of the SRM divides deeply the Eurozone countries, as well as the 28 EU members. Not to forget that this mechanism is the most important part of the Banking Union, that everybody agrees on the urgent need for its creation.

Commission’s SRM

As it is now clear, the Commission has finally decided to propose a Single Resolution Mechanism propelled by a Single Resolution Authority to be enacted under its own roof in Brussels. According to the executive arm of the EU, this SRA should have access to funding because it is highly possible that the resolution of a failing bank will leave behind liabilities which have to be covered. In view of this need of funds the Commission adds that a resolution fund should also be created, which will be capitalized by a small levy imposed regularly on all banks. If a resolution occurs before enough capital is accumulated in this fund the authority should be able to borrow from the European Stability Mechanism and pay the money back when the fund has stored enough wealth.

However all these proposals are a bit far-fetched. It’s very uncertain how this resolution levy will be imposed on all Eurozone banks. Would all of them be obliged to pay the same levy? If not, how will it be customized? The prudent and the careless bankers will pay the same levy? Will it be a tax? If not a tax then what?

In short, it is quite uncertain when or even if at all this levy is to be imposed. Only last week the Commission’s own legal service advised that the imposition of a special financial tax (The European financial transaction tax – FTT) in twelve willing to do so EU countries (Tobin Tax), is illegal. On top of that the European Court of Justice ruled that the power given to the EU markets watchdog, the European Securities and Markets Authority (ESMA), to ban certain types of short selling, was illegal. All that mean that the legality and the fairness of a levy on all Eurozone banks to finance the resolution of the ones that go bust, is utterly uncertain. Consequently, if the resolution task is realised by the European Commission, the liabilities to be left behind a failing lender will create new obligations, which will be eventually covered by the ESM. In this way the burden to resolve for example an imprudent Greek or Spanish bank will be diffused to all Eurozone member states according to their participation in the ESM.

Mutualising the risks

Germany is the largest contributor to ESM and will thus pay also the largest part of the liabilities that the resolution of this possibly Greek or Spanish careless lender will leave uncovered. This is not at all fair, because everybody knows that a lot of banks in member states are up to their heads in not always clean dealings with their governments and local businesses. The less clean those dealings, the more prone the banks are to go bust and burden the German taxpayer. This is exactly what Germany wants to avoid and demands for a change in the Treaty. The reasoning behind is that such a mutualisation of financial risks has to have very strong political and legal foundations, because it will mutualise financial responsibilities that nobody can estimate their magnitude. It is an open secret that the banks hide in their books immeasurable risks not always quite clean.

No wonder why MEPs from across the political spectrum pressed the Commissioner yesterday for more details about the enactment and the workings of the bank resolution regime. “Would the Commission push ahead with its plans despite Germany’s resistance? asked Peter Simon (S&D, DE). Could the planned EU resolution fund borrow money from the European Stability Mechanism (ESM) until it was fully capitalised by banks’ contributions? asked Wolf Klinz (ALDE, DE)”. Mr Barnier answered he did not see any problem with the new fund borrowing from the ESM or from other sources. Responding to Mr Simon, he said he was open to amending the treaties but did not see this as a pre-requisite.

All the answers Barnier gave are quite open to criticism. If the resolution authority starts borrowing from the ESM to deal with failing banks, as the Commissioner proposed, the Mechanism may soon end up dry and unable to perform the task it was created for that is to support the Eurozone member states in need. Then Barnier almost carelessly added that the resolution authority may borrow “from other sources”, as if the streets of Brussels were full of other financial sources. Last but not least, his answer to Peter Simon going approximately like this, “let’s first create the resolution authority and then legalise it with a change in the Treaty”, must have made Barnier look sloppy and superficial. No surprise if this Commission proposal would be met with strong reservations today when the MEPs will discuss it in-depth.

There is no doubt that this Commission proposal may end up in the dustbin and the German proposal for the ‘nationalisation and decentralisation of bank resolutions’ goes ahead.

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

Tokyo 2020 Olympics: from cardboard beds to recycled medals, how the Games are going green

Greece to stay in the euro area but the cost to its people remains elusive

The Monetary Union drives Europe into dangerous paths, CoR demands an EMU of regional content

Meet Alice, the battery-powered plane that could herald the age of electric air travel

Commission’s action against imports from China questioned

Fisheries: Commission proposes measures to conserve stocks of deep-sea species in the North-East Atlantic

Russia must urgently step up fight against foreign bribery

Threat from petty criminals who turn to terrorism, a growing concern, Security Council hears

Assembly President launches new initiative to purge plastics and purify oceans

Learning from our past mistakes: the mental health burden of two pandemics

Mobile technology saving lives: changing healthcare systems with simple technological solutions

Top officials say UN will support Bahamas’ rescue, relief efforts as Hurricane Dorian churns in Atlantic

Robots and chatbots can help alleviate the mental health epidemic

The dangers of data: why the numbers never tell the full story

The global economy is woefully unprepared for biological threats. This is what we need to do

Here are three ways blockchain can change refugees’ lives

Sherpa climbers carried out the highest-ever spring clean. This is what they found

Coronavirus Global Response: EIB and Commission pledge additional €4.9 billion

French Prime Minister passes Stability Program and takes his ‘café’ in Brussels this June

Paris, Washington, IMF against Berlin and ECB on money and interest

My twin from Guangzhou

This country came up with 5 novel ideas to tackle the pandemic

Antitrust: Commission fines Sanrio €6.2 million for restricting cross-border sales of merchandising products featuring Hello Kitty characters

It’s Time to Disrupt Europe, Digital First

EU Civil Protection Mechanism must be sufficiently funded to save lives

World Health Day: Statement by Commissioner Stella Kyriakides

This is what Belgium’s traffic-choked capital is doing about emissions

Warmer months ahead for many parts of the planet: UN weather agency

‘Stay at home’ UK tells people as global confirmed cases pass 380,000 – Today’s coronavirus updates

As India’s lockdown ends, a mental health crisis is just beginning

100 years on, UN labour agency mission focussed on growing inequality, says Director-General

Europe’s dirty air kills 400,000 people every year

GSMA Mobile 360 Series – MENA in Dubai, in Association with The European Sting

UK: Customs Union with EU or a longer delay of Brexit

Brexit: Six more months of political paralysis or a May-Corbyn compromise?

In the United States, there aren’t enough hours in the week to make rent

UN experts decry torture of Rakhine men and boys held incommunicado by Myanmar’s military

Rich economies not a promise of education equality, new report finds

Working together to end the AIDS-HIV pandemic

3 reasons why data is not the new oil – and why this matters to India

Superbugs: MEPs advocate further measures to curb use of antimicrobials

These are the best MBAs if you want to be an entrepreneur

Austerity lovers to put a break on Renzi’s growth vision for Europe? the Sting reports live from World Economic Forum 2015 in Davos

Brunei’s new penal code would enshrine ‘cruel and inhuman punishments’ UN rights chief warns

UN chief urges emergency fund support as one of the ‘most effective investments’ in humanitarian action

‘Power is not given, power is taken’, UN chief tells women activists, urging push-back against status quo

Digital Finance Package: Commission sets out new, ambitious approach to encourage responsible innovation to benefit consumers and businesses

COVID-19 and German constitutional court decision top meeting with ECB’s Lagarde

Berlin wants to break South’s politico-economic standing

Businesses are thriving, societies are not. Time for urgent change

A Glimpse into the Future of the Health with Mobile Technology

A new roadmap for corporate climate governance

Hatred ‘a threat to everyone’, urges Guterres calling for global effort to end xenophobia and ‘loathsome rhetoric’

UN working to prevent attacks on civilians in eastern DR Congo

Western Balkans: European Parliament takes stock of 2018 progress

Brexit update: Will the EU grant extention to Britain preventing economic chaos?

Misinformation and growing distrust on vaccines, ‘dangerous as a disease’ says UNICEF chief

8 steps towards a sustainable economic recovery

We now know how much ice Antarctica has lost in the last 25 years – three trillion tonnes

Von der Leyen on EU long-term budget: our opportunity to make Europe fit for the future

More Stings?

Advertising

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s