10 July 2013

FT: Berlin rejects Brussels' attempt at grabbing power to shut banks

Germany has attacked the European Commission for overstepping its legal powers with a proposal to make itself the top authority for winding up eurozone banks, setting the stage for a bruising political fight over the next leg of Europe's Banking Union.

All the main elements of the the Brussels blueprint– from the centralisation of sweeping powers to creation of a €60 billion resolution fund – were flatly rejected by senior German officials for going beyond the law and leaving taxpayers exposed. “We must find a legally safe solution”, said Steffen Seibert, German government spokesman. “In our view, this proposal gives the commission powers it does not possess according to current [EU] treaties.”

Such fundamental objections from the eurozone’s main paymaster – including to the single-market legal base underpinning the entire proposal – bodes ill for Brussels’ hopes of a strong deal before the European parliament shuts for elections in March. Mr Seibert insisted Germany wanted a swift agreement on banking union but warned that the commission’s plan would slow down the negotiating process rather than accelerate it.

Berlin’s reaction to the proposal laid bare its palpable exasperation with the commission approach to the issue in recent months. Germany and France put forward an alternative compromise plan for a resolution board effectively controlled by the eurozone Member States rather than the European Commission. They say that would be legal without any treaty change. EU officials see the German manoeuvres as the tactics of a forceful negotiator, rather than a blocking position, and are optimistic about progress after the German elections.

Those involved in the talks think the conflicting policy goals in Berlin could help clear the path. Berlin is supportive of tougher resolution rules, so that creditors – rather than Germans – shoulder the burden of paying for bank failure. Given the potential fiscal implications of a bank failure, Berlin wants a bigger say for Member States – among whom Germany is the largest – especially when joint funds are deployed.

The commission has already made some limited concessions to Berlin, including a higher voting bar to use central resolution funds and a provision precluding the resolution authority from imposing losses on taxpayers.

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