Parliament toughens its position on banking union

European Parliament. Committee on Economic and Monetary Affairs (ECON) meeting, on “Eurozone banks supervision regime”. (In the forefront) Marino Baldini (S&D, HR) (second from left), Elisa Ferreira (S&D, PT), (third from left), Jean-Paul Gauzes, (EPP, FR) (second from right). Vote by a show of hands. (EP Audiovisual Services, 17 Dember 2013).

European Parliament. Committee on Economic and Monetary Affairs (ECON) meeting, on “Eurozone banks supervision regime”. (In the forefront) Marino Baldini (S&D, HR) (second from left), Elisa Ferreira (S&D, PT), (third from left), Jean-Paul Gauzes, (EPP, FR) (second from right). Vote by a show of hands. (EP Audiovisual Services, 17 December 2013).

The Conference of Presidents of the European Parliament reiterated the tough position of the legislative in relation to the Single Resolution Mechanism for failing banks. The SRM is meant to complete within the next four months the enactment of a real European Banking Union, according to the MEPs vision. In order to emphasise the decisiveness of the Parliament, its leaders underlined that, “If the negotiations do not move forward in a constructive manner, the EP reserves its right to put forward for adoption in plenary its first-reading position on the basis of the ECON Committee report”.

In detail, the Conference of Presidents (CoP), the leaders of the political groups, President Martin Schulz and the European Parliament negotiating team on the Single Resolution Mechanism (SRM), held an intensive discussion Thursday 16 January in Strasbourg on the state of play of the negotiations. The outcome of this meeting can be epitomised in the following passage of the Press release issued afterwards: “The Conference of Presidents and the negotiating team firmly reject the Intergovernmental Agreement approach on the SRM in the Council given that it undermines the Community Method and the Ordinary Legislative Procedure”.

Parliament sees a stalemate

It is obvious then that the “current state of play in the negotiations is not promising, given the wide differences between the Council and Parliament, meaning that no deal before the European elections in May is a distinct possibility”. This is something that the Council wants to avoid at any cost. The prospect of strong presence of Eurosceptic and extremist MEPs in the next Parliament after May elections may derail Berlin’s plans for a weak, ‘nationalised’ and politically biased European Banking Union. By the same token, the EU Parliament has decided that the SRM, being the second pillar of the banking union, should be politically unbiased and operate in complete transparency.

On the other side of the fence the Council, guided by Germany, on 18 December proposed “a draft regulation on the single resolution mechanism (SRM), and a decision by euro-area member states committing them to negotiate, by March 2014, an intergovernmental agreement on the functioning of the single resolution fund”. This is the usual way of resolving an EU matter outside the standard EU procedures, sidestepping the Parliament and the Commission. However the Parliament has to give an initial consent for this intergovernmental conference, a prospect which is not visible as things stand now.

Who pays for what?

In any case the resolution fund will be the key instrument of the SRM, because it will pay for the cost of a resolution. According to the compromise reached at the ECOFIN Council, this cost will be covered almost exclusively by resources of the member state where the bank is based. This arrangement will be in force for at least the first four to five years, after the Banking Union starts its operations. Then gradually the cost of winding down a bank will be progressively shared by all member states and only in the tenth year the national resolution funds will merge into one.

This arrangement will be realised through an intergovernmental conference. The basic characteristic of this system will be the initial ‘nationalisation’ of resolution cost and the political patronage of the entire procedure, as Germany wanted and Paris didn’t oppose. Obviously, Berlin and Paris couldn’t accept to outright undersign the obligations for the resolution of say an Italian or a Greek bank. On top of that, the entire process of deciding and effectuating the resolution of a bank, by being under political control, will presumably give the prerogative to Germany and France, the two politically strong core members of Eurozone.

This is what the present European Parliament wants to avoid and this is what the next Parliament will presumably deny. Add to that and a kind of ‘command’ issued by the German minister of Finance Wolfgang Schauble, who asked the Parliament not to delay its approval of the Council’s decision, and the final outcome is, a perfect stalemate.

The next weeks will produce very interesting developments. Currently the ball is theoretically in the hands of the Greek Presidency of the Council, expected to propose a way out. In reality though, it’s the Commission that has to come up with a solution to, at least partially, satisfy all parties.

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