BRUSSELS (MNI) – EU finance ministers have called for an extra
meeting next week ahead of the EU leaders’ summit in hopes of ironing
out remaining differences over the Eurozone’s flagship strategy of
centralizing banking supervision in the hands of the European Central
Bank by next year.

The 27 ministers still disagree over the fundamental questions of
scope and voting rights in the new supervisory architecture, which they
see as core to fixing the Eurozone’s design flaws and preventing future
financial crises.

In particular, governments and the ECB still need to agree exactly
which institutions should be under the ECB’s direct daily supervision
and which should be the left mostly up to national supervisors. The
debate on that question is now focusing on a size threshold.

“The ECB, as the center, cannot directly supervise hundreds of
banks. That would not be credible in the eyes of the market,” ECB Vice
President Vitor Constancio told finance ministers at a meeting here
Tuesday.

Constancio urged governments to consider the threshold set in the
US supervisory system, in which the Federal Reserves oversees directly
only banks with more than $50 billion in assets, while the rest are the
daily responsibility of the Fed’s regional network.

“It should not be very different from that in our case, otherwise
this will not really be seen from the outside as something that could be
effective in practice,” Constancio said.

Governments that are currently outside the Eurozone but are
committed by law to adopting the euro one day continued to push for
equal status in the proposed supervisory structure, an issue that is
complicated by the fact that those countries are not represented in the
ECB, whose Governing Council legally must have the final say over any
decisions emanating from the central bank.

Those governments, led by Sweden, are unhappy that the ECB’s
Governing Council, made up of Eurozone central bank governors only,
could in theory scupper agreements struck by a planned Supervisory Board
that would include the non-Eurozone countries wanting to join the common
supervisory system.

A proposal to address these concerns through the establishment of
an independent panel of experts received a tepid response from the
governments and the ECB, which proposed an alternative solution of
adapting its internal rules to include non-Eurozone representatives in a
joint meeting should its Governing Council ever overrule a Supervisory
Board decision.

Describing such a situation as merely “theoretical,” Contancio said
he was “confident” the bank’s internal rules could be adjusted to
provide “a further guarantee of fair and equal treatment for all
participant countries.”

EU leaders have pledged to agree the new bank supervisory framework
by the end of this month so it can be rolled out over the course of next
year, but they must win over skeptical governments including the UK,
which wants rules to ensure the ECB cannot effectively dictate banking
regulations to non-Eurozone countries by voting for the currency bloc at
the European Banking Authority.

At the meeting today, the UK seemed to win some support, most
notably from Sweden and Denmark, for its call to change the EBA’s voting
rules to ensure that a simple majority of EU members composed entirely
of Eurozone countries would not be enough to pass decisions, a view that
has already received the backing of the European Parliament.

French finance minister Pierre Moscovici, however, said he opposed
changing the voting system at the EBA because it would “considerably
weaken supervision in Europe.”

Although only a few weeks remain to meet the deadline set by EU
leaders for an agreement, some countries including Germany, Sweden, and
Austria continue to argue that quality is ultimately more important than
speed.

Pushing for a rapid agreement on banking supervision in order to
fulfill one of the criteria for enabling the European Stability
Mechanism to start recapitalizing banks directly, Belgium’s finance
minister Steven Vanackere insisted that “the tempo of our composition is
part of the quality.”

The day before the meeting, German Finance Minister Wolfgang
Schaeuble warned EU parliamentarians that waiting for the ESM to begin
direct bank recapitalistions would be like “waiting for the snow to melt
in the alps.”

–Brussels Newsroom, +324-952-28374; pkoh@mni-news.com

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