Friday, January 2, 2015

Banking Union: ECOFIN and Parliament ready to compromise

Banking Union: ECOFIN and Parliament ready to compromise
February 19, 2014 by
Ecofin Council of 18/2/2014. Yesterday the EU finance ministers discussed the possible adjustments to the Council’s general approach reached in December 2013, on the single resolution mechanism. (The Council of the European Union, audiovisual services).
The absolute necessity to conclude before May the trilateral negotiations on the functioning of the Single Resolution Mechanism (SRM) for failing banks and clarify the role of the Intergovernmental Agreement (IGA) (in relation to the control and the use of the Single Resolution Fund), united yesterday all the representatives of three decision-making bodies of the EU, namely the Council (ECOFIN), the Parliament and the Commission. One reason that the May deadline appears final is political. Undoubtedly, the next Parliament which is to be formed after the May European election will certainly be much less cooperative with the rest of the Brussels institutions. By the way this IGA body is composed by representatives of the participating member states and has now been baptized Eurogroup+.

In any case, even if the next legislative is not uncooperative, the complexity and the extent of the legal and financial infrastructure of the European Banking Union will be a real ordeal for the new MEPs to grasp. The present negotiation team members of the European Parliament are familiar with the issues at stake after almost three years of hard labour. The lead negotiators for the European Parliament are Elisa Ferreira (rapporteur) (S&D, PT), Corien Wortmann-Kool (EPP, NL), Sylvie Goulard (ALDE, FR), Sven Giegold (Greens, DE), Vicky Ford (ECR, UK), Thomas Handel (GUE/NGL, DE), Sharon Bowles (committee Chair) (ALDE, UK).

The stalemate

As things stand now, the IGA, which according to the ECOFIN wish will manage the Single Resolution Fund, is totally estranged from the Parliament. Legally, it is a common international agreement between independent countries, outside the EU institutions. However the close interconnections between the IGA and the SRM make the concession of the Parliament quite indispensable for the creation of the Intergovernmental. Understandably, the non-EU nature of the IGA has caused strong reactions from the Parliamentarians, who are now trying to confine its authority.

The other and more important reason that the EU must come up with a solid Banking Union within the next two months is economic and financial. The Eurozone banking sector as it stands now cannot support the real economy, with the much-needed credits, especially as the SMEs are concerned. The anemic growth in the euro area, among other things, is a direct result of the lack of bank loans to SMEs. Apart from the South, a lot more central countries like Holland and Austria suffer of this lack of credits. Every month, the European Central Bank announces a new decrease of the overall loan balance. Without the Banking Union all Eurozone banks will continue functioning in a sea of uncertainty and they will abstain from their regular activities.

In such a banking environment the European financial markets have come to a stand-still. Only the very big business groups can find finance outside the regular banking industry. The SMEs which account for more than 95% of all business entities and produce almost three-quarters of new jobs are facing a total loan scarcity. In the south of Eurozone the entire business sector is practically cut off from any form of financing. One after the other the large Greek companies transfer their seat to core EU countries, in the hope to find financing through the stock market or otherwise.

The Parliament compromise

In view of this situation the European Parliament negotiators appear ready to compromise with the ECOFIN Council. The Parliament issued a Press release to put all that in a new framework. It goes like this: “The EP negotiators reiterate their strong resolve to reach a compromise with Council during the current electoral mandate. But such a compromise must be a ‘good’ one … This means that the following principles, among others, should be ensured:
* Decision making on individual resolution cases must be credible, efficient and predictable…the political interference through the involvement of Member States should be avoided since it adds complexity, slows down the processes, and inevitably leads to power-politics…
*The Single Resolution Fund must be single and equally accessible from the start…The ‘national compartments’ of the Council model creates an un-level playing field. Council’s mechanism also allows taxpayer money to be brought in before exhausting the fund… To enable credibility, a repayable loan facility should be established from the beginning of the building up of the Fund.
*The resolution mechanism will rely on the Single Rule Book established in the bank recovery and resolution directive (BRRD)…
*The legal framework on which to base the mechanism (SRM) and fund (SRF) is the Regulation.

For one thing the Parliament seems now ready to compromise on the last issue; the legal framework, and accept a role for the IGA outside the EU standards, but tied to the SRM Regulation. The idea is to cut the powers of Intergovernmental Agreement and of the Council. The ECOFIN wants the IGA to decide almost on everything when it comes to the Single Resolution Fund. It also demands that the Council and its member states to be able to reverse even the decisions of the Single Resolution Board, when it comes to resolving a bank after the ECB has defined it as beyond limit of repair. It must be noted that the SRB is foreseen in the draft Regulation of the Single Resolution Mechanism, as proposed by the Commission on 10 July 2013. According to it, the SRB is made up by representatives from the ECB, the European Commission and the relevant national authorities.

The ECOFIN backs off

Yesterday however the ECOFIN left to be understood that it may accept “A possibly better framing of the Council’s (ECOFIN) role in order to limit its discretion and the grounds on which it can raise objections to the SRB’s decisions, as well as a simplification and, if possible, shortening of the decision-making process”. This is what Ioannis Stournaras the Greek minister of Finance and President of the ECOFIN clearly proposed. In this way the ECOFIN comes nearer to Parliamentarians who demand that, “the political interference through the involvement of Member States (ECOFIN) should be avoided, since it adds complexity and slows down the processes”.

The ECOFIN seems also to accept a better framing of the control of the SRB over the Fund. To this effect Stournaras estimated that there might be “A review of the thresholds for the involvement of the plenary (of the SRB), and of voting modalities, especially during the initial transitional phase of the single resolution fund (SRF), to have a balanced solution for the use of the SRF”. This means that the Council may accept checks and balances on the role of the IGA in controlling the Fund. Now it accepts that the SRB may have a say on the SRF. That’s why the Parliament stressed, “The Single Resolution Fund must be single and equally accessible from the start”. Obviously a lot of compromise is needed in this chapter for an agreement to be finally reached.

ECB’s role sterengthened

Last but not least the ECOFIN appears now ready to accept an increased role for the ECB. In this respect Stournaras noted that “A central role for the European Central Bank in determining whether a banking institution is failing or likely to fail, while the SRB should ultimately maintain a possibility to effectively influence that function too”. The ECOFIN seems also ready to follow ECB’s advice and cut down to five from ten years, the time needed for the full mutualisation between the member states of the burden of winding down a bank.

In short, the ECOFIN Council is ready to accept a compromise on its absolute control on deciding and funding a bank resolution. By the same token the Parliament is ready to recognize the need for an Intergovernmental Agreement, which will have a well-defined and restricted control on the resolution fund.

ECOFIN Council
Giulio Tremonti was the chairman for the Ecofin Council, and is a trustee at the Aspen Institute (think tank).

Note: Foundation to Promote Open Society was a funder for the Aspen Institute (think tank).
George Soros was the chairman for the Foundation to Promote Open Society.
Charles D. Powell is a trustee at the Aspen Institute (think tank), a member of the House of Lords, and was Margaret Thatcher’s private secretary & foreign affairs adviser.
House of Lords is a house in the British Parliament.
House of Commons is a house in the British Parliament.
Margaret Thatcher was a member of the House of Commons, the prime minister for the United Kingdom, and Charles D. Powell was her private secretary & foreign affairs adviser.
David Cameron is the prime minister for the United Kingdom, and William J. Bratton is his security adviser.
William J. Bratton is David Cameron’s security adviser, the New York City Police Department commissioner, a member of the Homeland Security Advisory Council, married to Rikki Klieman, was the Boston (MA) police commissioner, the Boston Metropolitan Police superintendent, and the Los Angeles (CA) Police Department chief.
Bratton Praises 'Two of New York City's Finest' (Past Research on William J. Bratton)
Sunday, December 21, 2014
Rikki Klieman is married to William J. Bratton, and a member of the Women's Forum.
Beth A. Brooke is a member of the Women's Forum, and a trustee at the Aspen Institute (think tank).
Alice Young is a member of the Women's Forum, and was a trustee at the Aspen Institute (think tank).
Giulio Tremonti is a trustee at the Aspen Institute (think tank), and was the chairman for the Ecofin Council.

No comments: