By Peter Koh and Johanna Treeck
LUXEMBOURG (MNI) – An EU report outlining a vision for deeper
integration in Europe, proposed as the long-term solution to repair the
flaws of Europe’s currency union, should be seen as just the start of a
debate that in the short term could aggravate open wounds.
The document, prepared by the presidents of the European Council,
European Commission, European Central Bank and the Eurogroup, calls for
an EU banking supervisor – possibly the ECB – with power to intervene in
failing banks, backed by a common resolution fund and deposit insurance
scheme.
Presented formally to governments for the first time this afternoon
by European Council President Herman Van Rompuy, the report suggests
that the EU’s future bailout fund, the European Stability Mechanism
(ESM) act as the “fiscal backstop” underpinning such schemes.
The report argues that deep financial integration would be best
applied to all banks in the EU, but it acknowledges that the countries
sharing the euro currency may have to go further than some of the EU’s
other members, most notably the UK, are prepared to go.
Other governments, including Finland, have also voiced skepticism
that common oversight could be applied to all of the EU’s 8,000 banks
and have suggested it be limited to only the largest institutions.
The report’s heavy emphasis on the importance of joint debt
issuance has already sparked criticism from Germany, whose backing for
any such scheme is vital.
“In part, it reads like a wish list for debt mutualization, more
towards [mutualization] of new debt rather than old debt,” Germany’s
minister of state for foreign affairs, Michael Link, told reporters
ahead of the meeting.
The document suggests that Eurozone members could issue
jointly-backed debt, such as short-term bonds or bonds issued by a
redemption fund, to pay down some existing debt, subject to controls
such as strict limits on national debt levels and power for Eurozone
governments to demand countries make budgetary changes.
Germany says this set of conditions “falls very short,” but others
may think it goes too far.
More intrusive powers mentioned in the report for European
authorities to “strengthen the political and administrative capacity of
national institutions” to implement economic policies, could also rub
against the need to ensure “democratic legitimacy and accountability” of
European interventions in individual countries.
Suggestions that the democratic legitimacy of the process would be
assured by involving the European Parliament may not be enough to
placate some electorates.
The report also fails to set a timeframe for realizing its vision,
beyond saying that more detailed proposals for a “stage-based process”
would be presented in December. That seems to pour cold water on the
European Commission’s suggestion that Europe could move towards a
banking union by next year.
The order in which the different elements are put in place is a key
issue for Germany and other AAA countries, such as Finland, which want
to see governments first assent to European-level control before
agreeing to any common support.
“I am not sure whether the urgency of this is fully understood in
all the capitals of the European Union,” European Commission President
Jose Manuel Barroso said in a speech in Brussels Tuesday.
In the coming months, the Commission will present proposals for a
common European supervisor and a common deposit insurance and resolution
fund, paid for by banks, Barroso said.
–Brussels newsroom: +324-9522-8374; pkoh@marketnews.com
–Frankfurt bureau: +49 69 720 142; email: jtreeck@marketnews.com
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