Berlin rejects Brussels’ attempt at grabbing power to shut banks

By Quentin Peel in Berlin and Alex Barker in Brussels

©Bloomberg

Michel Barnier, EU commissioner responsible for internal market and services

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 Brussels blueprint unveiled on Wednesday – from the centralisation of sweeping powers to creation of a €60bn 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.

EU lawyers are adamant that the reforms, to give the commission resolution powers, are sound. Their position is broadly backed by France, Italy, Spain and the European Central Bank.
Michel Barnier, the EU commissioner responsible for the reforms, said he had “listened carefully” to the legal concerns but was convinced action was necessary and possible, without delay.
“We can’t wait for a treaty change to solve our problems,” he said. “We know what our problems are and we have to tackle them – we found a way to do that in the current treaty.”
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.
“We would be willing to speed up the process, but then the proposal has to be realistic,” a senior German official said. “The commission is behaving like a vacuum cleaner, sucking up everything into its proposal. It may be effective but it is not legally safe.”
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.
At the same time, it is protective of its own freedom to manoeuvre and is wary of anything that smacks of mutualisation. “They will realise that a strong system for all the eurozone will serve their interests and save them money,” said one EU official.

European banking union

The EU’s banking union plans seek to place eurozone banks under the overarching supervision of the ECB

But unlike the difficult talks on a single supervisor, this time Angela Merkel, German chancellor, is herself on record stating that a powerful resolution authority needs treaty change – a laborious process that could take years.
At the heart of the legal concerns is the use of an internal market legal base to justify expansive commission powers that apply to the eurozone and not all 28 member states. German officials argue such a role is not explicitly envisaged in the treaty.
Another worry is the use of internal market law, rather than tax provisions which require unanimity, to mandate a levy on all banks in the eurozone to stock up the resolution fund. Officials see a risk that banks could challenge the legal basis of the levy and leave national taxpayers even more exposed.
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.
The proposals:
● The European Commission is to be granted sweeping powers to decide if and when a bank should be shut down, based on advice from an arms-length resolution agency. It is to be responsible for resolution of all 6,400 eurozone banks.
● A Single Resolution Board is to be created to advise on when and how to trigger a resolution and execute the decision via member states. This includes setting the level of losses for creditors and sanctioning the use of resolution funds.
● A resolution executive board, a powerful subgroup, will be created to handle specific bank failures. Voting rules will ensure no member state can veto a resolution. The board is to be made up of the agency’s director and deputy director, a representative of the commission and European Central Bank, and national authorities of relevant member states.
● A Resolution Fund: the board will eventually control a fund of some €60bn financed by bank contributions. While funds are raised over a 10-year period, the board will be able to borrow money from markets, using bank assets and the levy as a guarantee.
● Member states are to be responsible for executing the resolution decision adopted by the commission, under the watch of the resolution board. The commission is prevented from forcing member states to provide state support to banks.

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