European Union Offers Berlin Compromise on Bank Proposal

Speaking in London, Michel Barnier, the European Union’s commissioner overseeing financial services, said there was “room for maneuver in the negotiation,” and tried to head off criticism from Germany that the European Commission, the executive arm of the 28-nation bloc, was using the proposal to make a power grab.

“I don’t have any ideology in the issue,” Mr. Barnier said. “It’s not that the Commission wants to have a big role in the resolution process — if someone would find and suggest to us a better solution we would be happy to look at it.”

The resolution fund is one pillar of the proposed banking union that policy makers see as an important part of the response to the financial crisis that has gripped the euro zone.

One question, Mr. Barnier said, was, “Should we be treating banks that are purely regional and have no cross-border activities in exactly the same way as big international banks?”

“That’s something that we can maybe look at further in the course of negotiations,” he added. Germany, whose approval will be needed for the resolution mechanism, has more than 400 local savings banks, which are economically and politically important.

Under Mr. Barnier’s plans, outlined Wednesday, the European Central Bank would signal when a lender in the euro zone, or in a country participating in the banking union, was in severe financial difficulties. With representatives of national authorities, the E.C.B. and the Commission, a board would undertake preparatory work before the Commission would then decide whether and when to place a bank into resolution.

That idea provoked immediate opposition from Berlin, and more evidence of discord in Germany surfaced Friday in a letter to Mr. Barnier from Finance Minister Wolfgang Schäuble. “The proposal published by the Commission regrettably envisages too high a degree of centralization with regard to the boundaries” of the existing E.U. law, the letter said, according to Reuters.

“The proposal does not match the current legal, political and economic realities and would create major risks,” Mr. Schäuble wrote, adding that the transfer of powers to the Commission was not backed by E.U. treaties.

Mr. Barnier disputed that, arguing that his proposal was the best solution available without changing E.U. treaties. He said that if the treaties were amended, the European Stability Mechanism, the euro zone’s permanent bailout fund, might take over the power to decide when to wind down banks.

One E.U. official, speaking on condition of anonymity owing to the sensitivity of the issue, said that agreement with national governments on the resolution fund was possible by the end of the year — but conceded that changes would likely be made. Most officials expect the role of the Commission to be pared back, but for legal reasons there are few alternative bodies that could make the decision to wind down a bank, they say.

In his speech in London on Friday, Mr. Barnier also warned against any effort by Britain to win special exemptions from E.U. single market rules for its financial services sector, the City of London.

“By definition,” he said, “there can’t be two single markets: one for financial services and one for the rest of the economy. One for the City, and one for the rest of the E.U.

“Repatriating full policy responsibility for financial services would mean leaving the single market as a whole and de facto the E.U.,” Mr. Barnier said, adding: “I believe the U.K. would lose out on many of its own interests if it chose that path.”

Prime Minister David Cameron has promised to renegotiate British ties with the European Union and some lawmakers from his Conservative party have called for new powers that would prevent Britain being outvoted on any new legislation on financial services.

But Mr. Barnier rejected that idea.

“It would not work,” he said. “If you give a veto to one country you have to give it to others and then we no longer have an internal market,” he said. “Our interest is in having a coherent single market with intelligent rules that apply everywhere.”

Article source: http://www.nytimes.com/2013/07/13/business/global/eu-offers-berlin-compromise-on-bank-union.html?partner=rss&emc=rss