24 June 2012

FT: Euro blueprint maps way to banking union

An EU blueprint for the future of the euro is to call for Member States to surrender powers to run their banks, give up some control over national budgets and explore pooling the risk of underwriting deposits and raising debt, according to the latest draft of the proposal.

While the 10-page draft lays out a detailed path to banking union, options for “eurobonds”, and the possibility of the EU’s permanent bailout fund directly buying stakes in banks, disagreements remain over elements such as the single bank supervisor’s remit and central controls over national budgets.

Disputes remain over which institution should become top supervisor. Speaking to German newspaper, Welt Am Sonntag, Mr Van Rompuy said “much quicker progress” could be made by “giving supervision to the ECB” – a step foreseen in existing EU treaties. But the Commission is pressing for the creation of a separate agency.

There is also disagreement over its remit. The draft refers to the single supervisor holding ultimate authority over “all banks”, but its day-to-day supervision role is unclear.

Germany is resisting the supervisor winning power over its regional savings banks, a demand that is making France think again about surrendering control of all its big banks.

In light of these proposed pan-European controls on banks, the draft paper calls for EU leaders to “actively explore” handing more intervention tools to the European Stability Mechanism, the EU’s €500 billion bailout fund due to come into force next month, and examine the role of eurozone central banks in providing emergency liquidity support to banks.

The reference to the ESM relates to the ongoing debate over giving the fund the means to inject capital directly into banks, rather than via loans to states. Ms Merkel has rejected the idea because no EU controls are in place.

Full article (FT subscription required)

© Financial Times