European Finance Ministers Deadlock on Plan to Oversee Banks

The ministers agreed to reconvene next week, a day ahead of a summit meeting of European Union leaders who had been hoping to focus discussion on the design of a banking union — something the leaders agreed last summer to establish as a way to safeguard the industry after member countries racked up enormous debts bailing out their banks.

That agreement in June had called for setting up the single regulator under the European Central Bank. And the bloc’s administrative arm, the European Commission, has proposed phasing in the system beginning Jan. 1.

But the deadlock on Tuesday indicated that there was sharp disagreement among member states over how many banks in the euro currency union should be covered by the new system; how to ensure that countries outside the currency union have a way to rebuff regulations they dislike; and how to ensure that the European Central Bank would keep monetary policy separate from its decisions on bank supervision.

After ministers failed to reach agreement Tuesday during their regular monthly meeting, Vassos Shiarly, the finance minister of Cyprus, the country holding the Union’s rotating presidency, set another session for Dec. 12.

If ministers fail to reach agreement at that meeting, the E.U. leaders will arrive at their summit meeting the following day without a cornerstone in place for the banking union. One of the goals for the union could eventually be to issue debt jointly backed by euro zone countries, as a way to buffer the sort of interest rate spikes that have often bedeviled weaker countries, including Spain.

Some ministers warned on Tuesday that further delays in designing the banking union could lead to a return of acute financial pressures in the euro zone. “If we are not able to deliver in the dates we have committed, this will not be neutral in terms of the stability of the markets,” said Luis de Guindos, the Spanish economy minister.

For Spain, stricter supervision was supposed to be the condition for using European funds to bail out its troubled banks directly and a way to avoid accumulating more sovereign debt. Once the supervisor is in place, Spain wants the money it is drawing upon for its bailout to be moved off its government ledgers.

But France and Germany remained divided over the new banking rules on Tuesday. That is a significant obstacle because agreement between the two countries usually is needed to accomplish major reforms in Europe.

Pierre Moscovici, the French finance minister, told the meeting that the new rules should apply to all lenders rather than lead to a two-tier system.

Chancellor Angela Merkel of Germany has suggested that the system could eventually apply to all 6,000 banks in the euro zone. But some German officials and industry groups would rather have the new centralized oversight apply only to the biggest European banks, and leave regulation of the country’s smaller savings banks in the hands of national officials.

French officials have stressed the need for a system that covers all euro zone banks. Otherwise, the French have warned, any sudden intervention by the E.C.B. into the affairs of a bank under national regulation could raise alarm among investors and depositors and even lead to bank runs.

But Wolfgang Schäuble, the German finance minister, said Tuesday that trying to give too much central authority to a new banking regulator would meet stiff political opposition in his country.

“I think it would be very difficult to get an approval by the German Parliament if you would leave the supervision for all the German banks to European banking supervision,” Mr. Schäuble told the meeting. “Nobody believes that any European institution will be capable to supervise 6,000 banks in Europe.”

The government in Berlin has complained that overly rapid implementation of the rules could lead to regulatory loopholes. German state governments also have balked at giving the central bank oversight of their sparkassen, the hundreds of small and midsize savings banks that do much of the lending to consumers and small businesses.

Germany also refused to support one of the main British demands: new voting rules to ensure that lenders based in London continue to be regulated by Britain.

Yet another concern for Mr. Schäuble was whether placing so much supervisory power within the European Central Bank could lead the central bank to compromise its decisions on monetary policy — if, for example, the E.C.B. were setting interest rates while also trying to oversee politically sensitive issues like bank bailouts.

“In the long run, you will damage the independence of the central bank,” Mr. Schäuble told the meeting.

Germany is the biggest financial contributor to the European Union, and establishing the single supervisory system could oblige Ms. Merkel to dip into the treasury to help prop up weaker European banks, like many of those in Spain. Such aid could be an issue for German taxpayers, ahead of national elections in their country next September. German citizens have already grown weary of paying most of the bill for bailouts, and they are wary of using more money to help banks in vulnerable southern European countries.

Another issue to be resolved in coming weeks will be the leadership of the group of ministers who oversee the euro area.

Jean-Claude Juncker, who has been the group’s president since 2005, reiterated at a news conference Monday night that he would step down at the end of this year or at the beginning of next year.

But he declined to signal his preference for any particular successor to the post, which gives the holder significant power over the agendas of their meetings.

Article source: http://www.nytimes.com/2012/12/05/business/global/daily-euro-zone-watch.html?partner=rss&emc=rss