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updated: 12/4/2012 6:35 AM

Germany, France at odds over EU banking supervisor

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  • Irish Finance Minister Michael Noonan, right, talks with Cypriot Finance Minister and President of the EU rotating Council Vassos Chiarly Tuesday during the EU finance ministers meeting at the European Council building in Brussels.

      Irish Finance Minister Michael Noonan, right, talks with Cypriot Finance Minister and President of the EU rotating Council Vassos Chiarly Tuesday during the EU finance ministers meeting at the European Council building in Brussels.
    Associated Press

 
Associated Press

BRUSSELS -- Germany and France have set out sharply different visions of a new banking supervisor for Europe that they hope would better deal with future financial crises, complicating talks between the 27 European Union nations.

The EU finance ministers hope to agree already on Tuesday on the setup of the new supervisory body, which will be headed by the European Central Bank and will hold wide-ranging authority over banks.

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But Germany and France, the continent's two largest economic powers, disagree on how many banks the ECB should be allowed to oversee, when it should start, and what its final powers should be.

German Finance Minister Wolfgang Schaeuble said `'it would be very difficult to get approval by the German parliament if (the deal) would leave the supervision for all the German banks to European banking supervision."

`'Nobody believes that it would work," Schaeuble said. Germany has hundreds of local banks which operate differently from large multinationals like Deutsche Bank. Schaeuble has been pushing for the new supervisor to oversee only the few dozen largest banks in Europe.

On top of that, he said the ECB had to remain at arm's length from any supervisory decision-making it takes on to protect its independence. The ECB sets monetary policy for the 17 EU countries that use the euro and is committed to remain independent of political pressure. Germany fear the ECB's independence may be lost if it has to negotiate the bailout of a bank in one of the member states.

`'The last decision cannot be left to the governing Council of the ECB," Schaeuble said of bank bailouts.

In contrast, France's Finance Minister Pierre Moscovici came out strongly for an agreement `'that covers all banks, and that is under the final control of the ECB."

He advocates supervision of all 6,000 institutions that have a banking license in the EU.

`'In the end it must be the ECB that has the responsibility on the whole. Otherwise, there is no real system of banking supervision," he said.

The banking sector has been seen as a prime cause of Europe's three-year crisis and agreement to fix it as an essential part to avoid a recurrence.

Not only have banks taken on bad investments, but national supervisors have often been reluctant to impose restructuring plans on them, particularly since many banks operate across borders. A common European supervisor, proponents say, would bypass the national politics and do what is needed to keep the continent's financial sector healthy.

The supervisor is a key part of a broader banking union the EU is working on. The 10 EU nations not using the euro want to be included in a banking union but also worry it could stifle their financial sectors if too harsh.

European leaders have agreed, in theory, to cede significant amounts of sovereignty to fix the banking issue and runaway spending of several member states.

As so often before, the practical implementation has proved difficult. The crisis has highlighted the many divisions within the EU, critics say, at a time when a strong and united vision was needed.

Such disagreement were perhaps still too big for the finance ministers perhaps to find a deal on Tuesday.

`'There is quite a lot of road to travel," said Swedish Finance Minister Anders Borg. `'There is a long time to Christmas. We can have extra (meetings) at any time."

Closer banking and monetary cooperation will be a key topic at next week's summit meeting of EU government leaders, and a deepening rift between traditional allies France and Germany would complicate progress.

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