17 October 2012

Bloomberg: EU tussle over costs threatens to derail bank union plan

The French-backed effort to fast-track a European bank supervisor is running into German-led concern over potential costs, as the region's leaders tussle over putting their crisis-fighting blueprint into action.

The splits over banking may emerge as proxies for wider disagreements over EU budget rules. Spanish Premier Mariano Rajoy isn’t ready to make a request for a bailout. And a report on Greek finances, due to back Prime Minister Antonis Samaras’s bid for more time to meet austerity targets, isn’t complete.

“If the banking union was to be approved in the presented form, we would certainly veto it”, Czech Prime Minister Petr Necas said in Prague. He called for stronger assurances that common supervision won’t encourage investors to move their money elsewhere. A June proposal to replace national deposit guarantees with an EU-wide scheme, billed at the time as an integral step in building a banking union, was deleted from the final version of a September paper prepared by the European Commission. That document called only for national deposit guarantee funds backed by some common rules.

Leaders will debate how quickly the ECB can take up its oversight powers as well as whether to give the commission a mandate to create a resolution authority, to work alongside the ECB and national regulators.

Euro area leaders are unlikely to hold a separate meeting, as they did alongside the EU summit in June. Battle lines are emerging on longer-term efforts to remake the currency union, with Germany leading a bloc of northern countries in floating the idea of a eurozone budget while ruling out the sale of common bonds or bills to finance it.

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