EU Ministers See Progress Without Specifics on Bank Plan

Feb 18, 2014 4:44 am ET

(Updates with comment by Dijsselbloem in second paragraph. Click here for European debt news.)

Feb. 18 (Bloomberg) -- European Union finance ministers hailed progress made in talks in Brussels on creating a system for handling failing euro-area banks, while offering few specifics about their advances.

“We have approached each other on a number of issues,” Dutch Finance Minister Jeroen Dijsselbloem told reporters at the start of a second day of ministerial meetings. The list of “complicated issues became shorter,” he said.

The proposal for a Single Resolution Mechanism, backed by an industry-financed fund to cover the costs of saving or shuttering lenders, is the next phase of the EU’s banking union project, which begins when the European Central Bank becomes the euro area’s single supervisor in November. Ministers are racing to reach agreement on the SRM bill with the European Parliament in time to get the law on the books before the assembly adjourns for May elections.

Finance ministers and the parliament set forth their competing versions of the bill late last year. Talks on a compromise text have so far proven fruitless.

“The political compromise we reached in December was a huge task,” said Dijsselbloem, who chairs meetings of euro-area finance ministers. “The room with various ministers to change position is limited. But we will see.”

Common Fund

One major sticking point has been the ministers’ insistence on putting the rules for the operation of the Single Resolution Fund in an intergovernmental agreement, not EU law, thereby cutting the assembly out of decisions. The scope of that agreement was the subject of yesterday’s talks, which were attended by parliament negotiators.

Sharon Bowles, chairwoman of the parliament’s Economic and Monetary Affairs Committee, said last night’s meeting was an “airing of views,” rather than an attempt to reach decisions.

Dijsselbloem said that while he expects the parliament to accept the principle of having an intergovernmental agreement, their goal is for it to be as narrow as possible.

“The principal issue of can there be an IGA seems to have been settled,” he said.

A key stumbling block is the pace of creating the common fund, which will be filled over 10 years with bank-industry fees. ECB President Mario Draghi has urged ministers to make the full fund available to all participating nations within five years, while German Finance Minister Wolfgang Schaeuble pushed back to say the fund can’t phase out its initial national compartments any faster than it moves to full strength.

Politically Complicated

The speed at which the fund should be pooled “remains a politically complicated issue,” as it means countries will be taking on each other’s risks, Dijsselbloem said.

“Only a limited number of countries are in favor” of increasing planned levies on banks to build the fund up faster, he said.

Schaeuble entered today’s talks without comment. Earlier, he had said while there may be some leeway on the details of the ministers’ proposal, its fundamentals must remain intact.

French Finance Minister Pierre Moscovici said “it was not possible” to reach a deal this week. Going forward, “everyone needs to move” to find an accord in time and accept that “flexibility doesn’t mean to give something up, change doesn’t mean humiliation,” he told reporters.

“The big three subjects on which we can progress are: the mutualization from the beginning and the rapid increase of the mutualized part, the creation of a lending capacity in a form yet to be defined and also the simplification of the decision mechanisms,” he said. “Things have progressed in the sense that the exchange was serene.”

National Barriers

France backs a faster pooling of national compartments in the fund, Moscovici told reporters this morning. Spain’s economy minister, Luis De Guindos, also indicated his support.

Bowles said the resolution system has to break down national barriers so the banking union doesn’t give countries too much sway over which banks benefit under the new system.

“There is still too much individual and collective member state involvement around the funding decision-making, but there are signs of a bit less emphasis on that,” she said.

Midway through the first day, Schaeuble had shown no sign of giving ground, according to Luxembourg Finance Minister Pierre Gramegna.

“There was no sign of any more flexibility from Germany, even if Mr. Schaeuble intervened on all these points and tried to explain his position,” Gramegna said. “We were not able to reach an accord on the different points today because the philosophies are different.”

Finnish Finance Minister Jutta Urpilainen said the “details on the compromise remain quite unclear, but it bodes well for this spring that the atmosphere is so constructive and there is a will to find a common stance.”

--With assistance from James G. Neuger, Rainer Buergin, Karl Stagno Navarra, Jim Brunsden, Jeff Black, Ian Wishart, Kati Pohjanpalo, Jonathan Stearns and Stephanie Bodoni in Brussels. Editors: Patrick Henry, Kati Pohjanpalo