States’ political will to be put to test
By Manon Malhère | Monday 03 December 2012
The 27 finance ministers will have to show strong political will if they hope to work out an agreement (general approach) on the package setting up a single supervisory mechanism (SSM) for the banking sector
(1) at the 4 December Ecofin Council.
Economic governance (the ‘two pack’), reform of capital requirement rules for banks and enhanced cooperation on the financial transaction tax will also be on the agenda.
“There will be an agreement if the political commitment is there,” said a European source, who added that “a number of questions still need to be settled”. The October European Council set the goal of securing an agreement on the legislative framework by 1 January 2013.
Many observers are pessimistic about the ministers’ capacity to work out a general approach on the whole package (the text giving the ECB supervisory powers requires unanimity) and they may end up with only a partial general approach so as to be able to start negotiations with the European Parliament the next day (5 December).
The division of tasks between the ECB and national supervisory authorities is one of the touchiest subjects and continues to divide the 27. France and Germany are diametrically opposed on this matter. Paris wants the ECB to supervise as many banks as possible while Berlin prefers to limit direct supervision by the ECB to banks that present a systemic risk and those under public assistance. The ECB could in theory be responsible for other banks under certain conditions. The highly political question of the ECB’s ultimate responsibility for all financial institutions, without conditions, is still open, several sources confirmed. From the technical standpoint, everything is a question of calibration (criteria organising decentralisation/inclusion of different national banking structures).
The gradual implementation of the single supervisory mechanism has not been agreed yet, either. The Commission proposes to make the mechanism operational from 1 January 2013 but to phase it in (with all banks under supervision from 1 January 2014).
Another politically sensitive and legally complex issue is the fair treatment of non-eurozone states participating in the mechanism, which obviously is a source of concern for these countries (including Sweden). Discussions at working group level have advanced on this point, say different sources.
To be treated fairly, non-eurozone states taking part in the SSM should have the same rights and responsibilities in the future ECB supervisory body as those that have adopted the single currency. Under the treaties, however, the ECB cannot exercise its powers outside the eurozone. Only the Governing Council – made up of eurozone members – can adopt official decisions. The 27 are working on the following compromise: the supervisory body’s decisions would be deemed adopted unless the Governing Council disputes them. If a decision is amended as the result of such an objection, a non-eurozone state participating in the SSM could choose not to apply the amended decision.
The fact remains, though, that giving voting rights in this supervisory body to states that do not belong to the eurozone poses “a fundamental legal problem,” said a national source.
The third contentious issue concerns voting rights in the European Banking Authority (EBA), which is a particular concern for the United Kingdom. “This is a subject for the end of the negotiations,” said one source.
Also on the agenda is the so-called ‘two pack’, two draft regulations aiming to improve eurozone governance and to clarify the supervision of countries under financial assistance. According to several sources, the EP and Council still have to agree on political aspects of the regulation on follow-up and assessment of draft budgetary plans and the correction of excessive deficits in eurozone states (Elisa Ferreira, S&D, Portugal, is rapporteur). The touchiest question concerns the inclusion in the text of a debt sinking fund, sought by the EP (Chapter III). The compromise in the Council may be to address this question in a recital, but certain states have so far objected to the drafting of such a recital (they want no reference to debt pooling).
The 27 will also review negotiations with the EP on the reform of capital requirements for banks, CRD IV-CRR (a directive and a regulation), which aims to implement the Basel III rules at European level. Negotiations are stalled and the Cyprus Presidency is waiting for the ministers to give political guidance on the subjects that continue to divide them (see
On enhanced cooperation on the financial transaction tax (FTT), the 27 will take note of recent developments. On 30 November, the 27 permanent representatives decided to send a letter to the EP requesting its formal approval of the draft decision authorising this enhanced cooperation.
The Council is expected to adopt a formal decision giving Greece another two years to correct its excessive budget deficit in the framework of its economic adjustment programme (by 2016 rather than 2014).
Erkki Liikanen, governor of the Central Bank of Finland, will present to the 27 the report by the expert group, which he chaired, on reform of the Union’s banking sector. The group turned in the report to the European Commission on 2 October (4499).
Many observers are pessimistic about the ministers’ capacity to work out a general approach on the whole package(1) The Commission presented a regulation giving the European Central Bank (ECB) supervisory powers in this area and a text amending the regulation on the European Banking Authority (EBA)