Berlin ‘orders’ the EU Parliament to compromise

The Party of European Socialists held its regular meeting ahead of the European Summit in Brussels last Thursday. The President of the European Parliament Martin Schulz pictured here, before heading to the meeting answered question by journalists in relation with the agreement on the structure of the European Banking Union, about to be endorsed by the 28 EU leaders. (EP Audiovisual Services 19/12/2013).

As expected the President of the European Parliament, Martin Schulz  strongly criticised  the agreement reached in the European Council by the 28 EU leaders, on the plan for the enactment of the Banking Union. He said, “The slower and inefficient a system is, the more expensive it will be”. However the Federal Minister for Finance of Germany Wolfgang Schauble’s reaction to what the Parliamentarian leader said was out of proportion. The German minister speaking in an interview to Frankfurter Algemeine Zeitung kind of ordered (!) the European Parliament not to procrastinate with the approval of the Council deal and he added that the Parliament had better do it soon, so as the plan for the European Banking Union be in place at the beginning of 2014. It must be mentioned that all EU legislation has to be approved in a triangle negotiation procedure between the Parliament, The Council and the Commission. No German minister can ask the Parliament to do this or that. Let’s follow the facts.

At his arrival to the European Council last Thursday, Schulz was questioned by journalists, about the European Banking Union and the agreement about to be endorsed by the 28 leaders later on that day. He commented that the banking union risked missing its goals under the plan which had been put forward by the EU Finance ministers the previous day. Talking about the resolution system dealing with failed banks, he said: “The slower and less efficient a system is, the more expensive it will ultimately be for everybody.”

The EU Parliament disagrees ‘Ma Non Troppo’

The European Sting has being following this issue very closely. Early on Thursday Sting writer Suzan A. Kane wrote “If the ECOFIN compromise is approved today by the 28 EU leaders, during their year-end European Council, then negotiations will start between legislators and the Greek presidency of the Council as from 1st January. The target is that negotiations between the Council, as represented by the Presidency, and the European Parliament are concluded on time and an agreement is reached over this regulation on the SRM at first reading, before the end of the Parliament’s current legislature (May 2014)”.

Some days earlier, on Tuesday 17 December, the European Parliament Committee on Economic and Monetary Affairs (ECON) had adopted a clear-cut position on the Banking Union. The main characteristic of that decision was the following: “The supervisor (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, would then evaluate this proposal and suggest that the Commission initiate such action”. As this Sting writer observed on that occasion, “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”.

Pressing an agreement

Everybody fears that the Parliament won’t be the same after the next European election. Voters are expected to send more Eurosceptic and extremist MEPs to the house, making the legislature a much more stiff body while negotiating with the Council and the Commission. This would become particularly evident in dealing with complex issues like the Banking Union. That’s why everybody in Brussels and Berlin is pressed to complete the Banking Union before May.

However the Parliament now doesn’t appear ready to endorse without improvements the plan drafted by the ECOFIN Council and blessed by the 28 EU leaders. Schulz had a lot to say on that. On the issue of the bank resolution he stressed that, “If a bank cannot be wound up within a weekend in order to prevent a run on the banks, the system is too complicated. The Commission must play a central role here, rather than untransparent bodies with untransparent interests – otherwise it will ultimately be a case of ‘Operation successful, patient dead’.” The EP President also criticised the plans for a resolution system based on national funds instead of a single resolution system for the transition phase. He said “Ultimately, the taxpayer will once again have to come to the rescue after all. That contradicts the fundamental idea of the banking union, which is that banks should come to the rescue of banks!”

With an eye on the May elections

Understandably, the European parliamentarians, in view of the May elections, would like to be seen as conducting a severe negotiation with the Council. However as noted above the Parliament’s ECON Committee accepted a role for the controversial Resolution Board, that Schulz now calls ‘untransparent body’. As for the question ‘who pays for a bank resolution’, the Parliament President is not quite right while stating, “the taxpayer will once again have to come to the rescue”. According to the Council proposal the Resolution Fund would turn to taxpayers as lenders of last resort, only to borrow. After some years, when the Fund will be capitalised by a levy imposed on all banks, it will return the money to taxpayers, be it the wealthy European Stability Mechanism (ESM) or the country’s exchequer implicated in the wind up of the failing bank.

Unneeded comments

This reaction by the Parliament President though, in no case can justify what Schauble said in that Frankfurter Algemeine Zeitung interview, published yesterday. The authoritarian language used by the German minister is inappropriate when addressing the EU Parliament and risks to provoke an unnecessary confrontation between Brussels and Berlin. It seems that the second term as Federal Minister of Finance for Germany has made Schaeuble more arrogant than in the past. Once more he lived up to his reputation as ‘Mr no’.

In any case the two positions held by the Council and the Parliament, in respect with the resolution of banks, do not diverge greatly. They both accept the creation of the Resolution Board and the Resolution Fund. The creation of the Board was a German idea, while the existence of a Resolution Fund wasn’t to the liking of Berlin. The compromise in the Council led to a gradual merger of the initially many national Funds into one, after some years. This procedure will follow the progressive completion of the Fund’s capital of €55 billion through a levy on all banks.

All in all the negotiations which are to be conducted in January between the Parliament and the Council will lead to a compromise for certain, and the Banking Union will be agreed and legislated during the first four months of 2014.