After months of debate on the European Union (EU) banking union which is meant to pave the way for a single resolution mechanism (SRM) for the orderly winding down of banks in trouble, the Eurozone’s finance ministers continue to repeat that they have ‘made progress’.
After the Eurogroup’s meeting on Tuesday, the rest of the EU finance ministers joined up in a meeting that hopes to finalize the project on Wednesday, in time for the European summit scheduled for Thursday and Friday.
Eurozone finance ministers left a meeting in Brussels that began on Tuesday and ended at 2:30 Wednesday morning without giving any details of any actual agreement.
‘We have come a long way,’ was all Eurogroup President Jeroen Dijsselbloem would say after a meeting for which no press conference had been scheduled.
The major push for the banking union is to ensure that taxpayer money does not end up funding bank crises, but any buildup of funds from financial institutions that are already under pressure to shore up their capital buffers is expected to take years. In this sense, any effective mechanism will need to provide a backstop and scant progress on an agreement seems to have been made.
Dijsselbloem insisted once again that officials have come ‘a very long way on the backstops’ without providing details. German Finance Minister Wolfgang Schäuble has long been the principal opponent of providing common funds due to his country’s outrage at funding peripheral country bailouts. Schäuble refused to say more than that progress had been made.
EU Monetary and Economic Affairs Commissioner Olli Rehn praised having reached a ‘common understanding on the backstops’ and hailed it as a ‘crucial breakthrough’.
However, remarks from French Finance Minister Pierre Moscovici’s seemed to hint that nothing concrete had been achieved. ‘There is a common backstop, which can take several forms. That will have to be specified in the years to come. No form is excluded,’ he commented.
The SRM is expected to eventually come about as individual countries build their own resolution funds that require bank contributions. It’s thought that these contributions will then be combined to form the SRM which, in turn, could be used to bailout banks during a crisis.
Regardless, interim funding must be agreed upon in order to begin the creation of the banking union. This may be done via the European Stability Mechanism as was done when Spain was granted its own financial sector bailout. However, opponents argue that even these funds are using taxpayer money.
Another source of disagreement is determining who will have the final say on when to close a bank. Germany favors national authorities making the decision, while France’s push is for the European Commission to be ultimate decision-maker.