The Social Committee may accept the new ‘contractual’ Eurozone

European Economic and Social Committee. Plenary session of 16-17 October 2013. President Henri Malosse (pointing a finger) opens the session. (EESC photographic gallery).

The European Economic and Social Committee (EESC), representing employers, workers and other interest groups, issued yesterday a Press release urging for the creation of the Banking Union and the establishment of a uniform bank resolution procedure. Obviously the leadership of the EESC, after reading the conclusions of the last EU summit of 24-25 October and probably talking to some key EU leaders, understood that the creation of Single Resolution Mechanism (SRM) for banks has become a Gordian knot.

Seeing this probable stalemate to develop and being very sensitive over the lack of finance for Eurozone’s peripheral countries and business, the Committee stressed yesterday, that the Banking Union is the only way to “reduce the fragmentation of the internal market that still plagues business across Europe”. But who impedes the Banking Union? To answer that, let’s analyse what the EESC has to say after last week’s EU Summit of the 28 leaders.

Contractual Eurozone

Germany set new conditions for the creation of the Banking Union during last week’s the EU Summit. Berlin in order to accept the institutionalisation of strong and centrally managed SRM and Single Resolution Fund (SRF) under the roof of the Commission, set conditions, which could possibly delay the whole process of the Banking Union. The European Sting reported last Saturday that, “Actually Berlin introduced a totally new concept in the European Institutions, the ‘contractual arrangement’”.

Obviously the member states which undersign those contracts will be obliged to impose austerity or other economic measures, every time the Commission says so. Understandably all Eurozone member states will have to undersign. This new institution will create a totally new bondage for Eurozone member states, obliging them to follow economic policies which have being drafted centrally (Commission recommendations). It will be something like the ‘contracts’ (memorandums), the three programme countries (Greece, Ireland and Portugal) have signed with the troika of EU-ECB-IMF.

It’s not only that though. Berlin also asked that those ‘contractual arrangements’ between the EU and each and every Eurozone country should be incorporated in the legislation of member states that sign them, but not as a regular law which may change. The Sting concluded that “It’s very probable that Berlin will demand that…the ceilings on fiscal deficits and debts should be included in Eurozone member states’ constitutions”.

The EESC intervenes

In view of this unexpected turn in the negotiations for the creation of SRM and SRF, the EESC felt obliged to intervene. Starting from the beginning, the Committee reminded everybody that the establishment of the SRM is a milestone in establishing the banking union. Then EESC took a step forward and adopted the position that this mechanism should “make the bank recovery and resolution rules consistent throughout the EU”.

This is a clear support for Commission’s proposal that all bank resolutions have to be realised by a central authority, which will follow exactly the same principles for all Eurozone banks. Germany has been arguing during the past months, that resolutions should be handled at national level by national authorities. That was until last week. As stated above, now Germany accepts that all bank resolutions could be realised centrally by the Commission, of course under the condition of this new ‘contractual arrangement’.

In view of that EESC said yesterday that “handling both supervision and bank resolution at the same level of authority was the move in the right direction. The former will be handled by the Single Supervisory Mechanism and the latter – by the Single Resolution Mechanism”. However it is definite by now that the SSM will be handled centrally by the European Central Bank. If the SRM is also to be handled centrally, then the EESC supports clearly the Commission’s position to institutionalise the resolution mechanism under Berlaymont’s roof.

Now concerning the resolution fund the Committee insists that it must, “have sufficient financial resources in order for it to be efficient and effective”. The EESC also adds that the “Members of the Resolution Board must be independent and democratic scrutiny of their decision ensured”. Undoubtedly the citizen’s representatives of the Committee have in mind that at least the leadership of this board must have clearance from the European Parliament.

Turning to the legal basis of the Single Bank Resolution Fund, the EESC notes it needs to be “clarified as soon as possible and all the challenges involved in setting up the fund, such as the risk of moral hazard, have to be addressed in advance”. The reference to the moral hazard means that prudence must prevail in using the resources of the Fund. It means also that the same prudent principles should be employed in all bank resolutions irrespective of the country of origin of the bank to be resolved. The Fund’s board may be tempted to discriminate between banks established in core or peripheral countries.

Does the EESC accept the ‘contracts’?

All that taken into account though the EESC doesn’t seem to bother much, if the Eurozone countries will be required to undersign this brand new condition; the contractual arrangement. Given the strong presence of the core EU countries in the EESC, this may be an indication that there is already an understanding between Berlin and Paris about this new contractual Eurozone.

In conclusion the EESC must feel that negotiations for the final structure of the SRM and SRF are now taking place behind closed doors. That’s why it took the pain to clarify its positions. However it is remarkable that the Committee managed to formulate its position during this past weekend, only hours after the EU Summit was concluded and the its conclusions published.

The European Economic and Social Committee (EESC), established in 1957 by the Treaty of Rome, is a consultative body that gives representatives of Europe’s employers, workers and other interest groups a tribune to express their views on EU issues. Its opinions are forwarded to the Council, the Commission and the European Parliament. The Committee has 353 members from across Europe. They are nominated by national governments and appointed by the Council of the European Union (member states) for a renewable 5-year term of office. Because of this mode of selection, EESC members might be influenced by governments and political parties.