10 July 2013

German press round-up: Who will make the decisions on Europe's ailing banks?

EU Commissioner Michel Barnier presented his plans for a Single Resolution Mechanism on Wednesday. Some Member States, particularly Germany and France, are protesting that the plans give the Commission unwarranted additional power.

Translated from the German

The proposal was met with hostility in Germany, with German Chancellor Angela Merkel’s spokesman Steffen Seibert saying: “In our view the Commission proposal gives the Commission a competence which it cannot have based on the current treaties". Dr Gunther Dunkel, President of the influential VÖB (the German Association of Public Banks) also criticised the plan saying: “It is not up for discussion for us, that funds gained through the work of German banks are used to contribute to the rescue of banks in other Member States”.

As the Süddeutsche Zeitung reports, the Single Resolution Mechanism (SRM), being one of the most important building blocks of the new banking regulation, should in future be in the hands of the EU Commission, according to plans by Commissioner Barnier. The "decisive signal" should, however, come from the new banking supervision under the umbrella of the European Central Bank (ECB). The actual implementation of the resolution process is then to be carried out by the relevant national supervisory authority.

Banking experts such as Marcel Fratzscher, head of the economic research institute DIW, see this as a major improvement, "as it is central that questions about the liquidation of financial institutes are decided on a European level".

These plans, however, are causing trouble between Brussels and Member States, especially Berlin. In the Frankfurter Allgemeine Zeitung, Commissioner Barnier denied that a treaty change would be required for his plans – this however is what German finance minister Wolfgang Schäuble (CDU) is insisting on: according to him, the Commission's proposal lacks a legal basis. "The plan envisaged by the Commission is not feasible", he said. "The project must be approved of by the Federal Constitutional Court."

"I strongly recommend that the European Commission changes its proposal so that it complies with the limited interpretation of treaties", he was further cited by the Handelsblatt. "Barnier's proposal is in conflict with the Treaty on the Functioning of the EU (TFEU) – within the current treaty framework, any commen implementation can only be carried out by a network of national authorities."

Barnier contradicted this and clarified that he had chosen the "most secure legal solution", as legally binding judgements could only be made by EU institutions, as ruled by the European Court. And the other EU institutions - the ECB, the Council of Ministers and the European Parliament – were not suitable because of possible conflicts of interest (in the case of the ECB) or because of too lengthy decision-making processes (Council and Parliament).

The impression that the EU Commission sought additional powers, a Commission official stated, was wrong. "There is no other way, and the questions are not of legal nature but it is a purely political issue", the Welt quoted further.

What is proposed is a two-step procedure for the resolution process. Barnier proposes a European settlement body (the "Board"), which would be made up of representatives of national resolution authorities, the European Commission and the Single Supervisory Authority (i.e. the ECB). When an ailing bank is identified, this Board will prepare a preparatory decision about the course of action. The Commission, however, wants to have the final word, meaning in practice the right to overrule the board. But s senior EU official said that a case in which the Commission did not follow the Board was barely imaginable.

The Handelsblatt quotes Barnier saying that the single resolution mechanism is one of the pillars of the Banking Union and "our biggest joint project since the introduction of the euro".