The Parliament sets the way for the European Banking Union

The final shape of the European Banking Union will be served as dessert on the dinner table of the 28 EU leaders on Thursday night. According to the invitation letter that Herman Van Rompuy addressed to the heads of states and governments on the European Union “Over dinner, the focus will be on economic and social policy and on the Economic and Monetary Union. In the presence of the President of the European Central Bank, we will analyse the economic situation… We also agreed to take stock of the completion of the Banking Union…The conclusions relating to these issues will be adopted at the end of the dinner”. Germany’s prerogative Again the decisive contribution on this dinner table will be a dish served directly from Berlin. Dr Angela Merkel after been sworn in as German Chancellor for a third time would have the prerogative to set the menu. The problem is that while all the other important players in this Banking Union game have in detail exposed their position on the rules, Germany is still giving vague indications about its targets and red lines. From what has been made known so far, Berlin prefers a Banking Union with a bank resolution system scattered over many authorities and over all Eurozone member states. In short, according to Germany, the central authority to wind down struggling banks should be shared between the European Commission, the European Council and a novel institution, called Single Resolution Board. Possibly the SRB can be created under the procedure of an intergovernmental conference and understandably it will comprise representatives from all Eurozone member state capitals. But member states will be participating in the system a second time through the Council. In this ‘construction’, the role of the European Central Bank becomes all more unclear. Clear cut role for ECB The role of the ECB as the supervisor and auditor of Eurozone’s banking system, as it has already been described in detail by the EU legislation (Directives) is to single out which bank or banks are beyond limit of repair. Of course this decision won’t come easy. Then after all the appropriate measures have been taken, this bank will be delivered to the resolution structure to be wound down. It seems though that Germany now challenges even that, and the final decision for the resolution of a bank should be handed over to this SRB. The rest of the players, including the Commission and the Parliament are ready to accept the creation of the SRB, but only if its role is clear-cut and will not present procedural delays and unduly subversions. To this effect, yesterday the European Parliament adopted a clear-cut negotiating position on the entire affair. It must be noted that Brussels and Berlin know very well that they have to conclude this affair during the next few months, before this Parliament is resolved ahead of the May 2014 European elections. It’s more than certain that the next Parliament will contain more Eurosceptic and extremist MEPs on both sides of the political spectrum. Parliament has the last word This different political atmosphere in the Parliament will present great difficulties for the EU’s tripartite legislative procedure (Commission, Parliament, Council), especially for the complex legislation needed to complete the European Banking Union. All the 28 EU leaders, who are expected to gather in Brussels on Thursday, know that very well. For this reason, they are ready to agree with this Parliament the remaining issues to enact the Banking Union, namely the Single Resolution Mechanism, the Single Resolution Fund and the Resolution Board. It seems then that the negotiating position adopted yesterday by the Parliament will be the guiding text to achieve an agreement. The core part of this position goes as follows: “The supervisor (the European Central Bank) would be the sole body empowered to propose initiating a resolution. The Resolution Board, composed of national resolution authority representatives and others (the Commission, the European Banking Authority, etc), would then evaluate this proposal and suggest that the Commission initiate such action. The Commission would then take the official decision to initiate a resolution and the Board would decide on the details for its execution”. Turning to the possible costs of a bank resolution, in case that the bail-inable funds (shareholders capital, unsecured creditors and depositors) are not enough, the Resolution Fund should intervene. To this effect, the Parliament decided yesterday that, “Within 10 years a European fund, fed by bank contributions and representing 1% of covered deposits, should be up and running. This fund would be set up within the legislative framework of the EU Treaties”. In the first 10 years, until the fund reaches its target level, it could be financed by loans from a “European public instrument”, a number of MEPs suggest. This would include, for example, loans from the European Stability Mechanism or the EU budget. If the new German government agrees to that, the whole affair is concluded and the European Banking Union will soon be a reality. Of course the legislators demand that “the Parliament’s approval will be needed to appoint the Resolution Board’s Executive Director and Deputy Executive Director, and it will hold regular hearings with them”. This is obviously something that the Council cannot deny. In any case after the Council adopts its own position, probably on Thursday in the 28 EU leaders summit, the talks with the Parliament’s negotiators will kick off under the intermediation of the Greek Presidency as from 1st January.