ECOFIN: Choosing between the re-unification of Eurozone and a stalemate

Tomorrow’s Economic and Finance Ministers Council (ECOFIN) set to be convened in Brussels, the first under the Greek Presidency, will have the crucial task to decide on the construction of the European Banking Union. In view of that, the European Parliament sent a letter to the Greek Presidency of the Council, rejecting both the legal base and the subject matter of a planned Intergovernmental Conference. This Intergovernmental option has been adopted by the ECOFIN in December. It is aimed at regulating the Resolution Fund for failing Eurozone banks. Through this Conference, which is the equivalent of an ‘international agreement’, the Council wants to avoid the ordinary legislative procedure of the EU, in violation of the scope, the impartiality and the effectiveness of the resolution procedures of failing banks. The letter, sent to the Presidency on 15 January, is signed by the Chairwoman of the Committee of Economic and Monetary affairs Sharon Bowles, the Rapporteur and all the Shadow Rapporteurs of the Committee. This means that all the major political parties of the European Parliament disagree with the Berlin imposed ‘invention’ of this Intergovernmental Conference and Agreement, which is nothing more than an international pact outside the EU standard procedures. Berlin politically isolated The idea for this Intergovernmental Conference – being convened in order to decide the details of the Resolution Fund for Eurozone’s failing banks – is that Germany doesn’t accept a uniform winding down procedure for all banks. The Resolution Fund is the key instrument in the whole affair of the Banking Union. It will also define the scope and the functioning of the Resolution Mechanism and the thereupon, the effectiveness and the credibility of the entire European Banking Union. No to forget that the EBU is the most important project that the Eurozone member states have embarked upon after the introduction of the common currency. Unfortunately Germany managed to convince the member states during the ECOFIN council of 18 December, to agree on this Intergovernmental Conference option. The target of this decision is that the cost of winding down a bank should remain an exclusively national affair during the next four to five years. Only in the tenth year, sometime in 2025, the national resolution funds will merge into one. However the European Parliament seems adamant and almost unanimous in its position not to accept the Intergovernmental, because, among other things, it sidesteps completely the legislative and the Commission. To this effect the Conference of the Presidents of the Parliament stressed that it backs the tough position of the Committee of Economic and Monetary affairs in relation to the Single Resolution Mechanism for failing banks. The SRM is meant to complete the enactment of a real European Banking Union within the next four months. In order to emphasise the decisiveness of the Parliament, its leaders (the Conference of Presidents, the leaders of the political groups, President Martin Schulz and the European Parliament negotiating team on the Single Resolution Mechanism) clarified on 16 January 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”. A crucial ECOFIN meeting Tomorrow at the ECOFIN Council there will be for sure a far-reaching debate about all that. Berlin will have to face also the Commission, which sides with the Parliament in opposing the Intergovernmental solution. The tough question remains though that Germany is the main financial power with a triple A creditworthiness rate and understandably it will be obliged to undertake the bulk weight of guarantees for the Resolution Fund, in case of a mutualised liabilities solution. This is exactly the friction point to be debated tomorrow and Germany has to decide if it backs a creditworthy and united Eurozone or it longs for a nationalised and unreliable version of the Banking Union where ‘everybody is for himself’. Obviously the rest of the euro area member states would point out to Berlin, that Germany cannot have just a seamless market for its products and pay no attention to the other facets of the Union. In any case the ECOFIN has to decide today if it will choose the confrontation path against the Parliament and the Commission, risking to leave the Banking Union project unfinished or go for the reunification of the Union?