EU FINANCE ministers have split over moves to have the European Central Bank supervise euro zone banks, creating a fresh hurdle for the Government as it seeks a deal to have the European Stability Mechanism fund recapitalise stricken Irish banks.
While the adoption of new ECB powers is a precondition for the deployment of the ESM to rescue Irish or Spanish banks, divisions between Germany and France and their allies point to a difficult negotiation in the months ahead.
EU leaders had hoped the plan would be finalised by the end of the year but tension surfaced during two days of talks between finance ministers in Nicosia.
This could complicate discussions on the possibility of the ESM being deployed to the surviving Irish banks: Bank of Ireland, Allied Irish Banks and Permanent TSB.
However, Minister for Finance Michael Noonan said as he left Nicosia on Saturday he was making progress in separate engagements with the ECB to recast Anglo Irish Bank debts.
The ECB was more willing than before to revisit the Anglo promissory note scheme, he said. But he declined to say when he hoped to strike a deal or how Ireland’s debt sustainability might be improved as a result.
The progress he reported opens up the possibility that an agreement may be reached with the ECB on Anglo, while talks continue on the prospect of ESM aid for the surviving banks.
The latter issue cannot be settled until member states resolve a standoff over the speed at which the ECB is to be granted new supervisory powers and the scope of those powers.
Berlin’s scepticism about draft legislation from EU internal markets commissioner Michel Barnier and the tight implementation deadline he set is well-known.
In Nicosia, however, the Netherlands and non-euro countries such as Sweden, Poland and Britain lined up alongside Germany in one way or another. The legislation, though it mainly deals with euro zone banks, cannot be passed without the support of all EU member states.
At the same time, France rallied the support of Spain, Italy and Belgium in pushing for a swift enactment of the new laws.
“We plead very much that stress tests be conducted before systemically relevant banks get transferred from the national supervisor to the European,” German minister Wolfgang Schäuble said on Saturday.
This demand opened a new flank in Mr Schäuble’s opposition to the plan. He had arrived in Nicosia questioning the wisdom of Mr Barnier’s push to have the ECB supervise all 6,000 euro zone banks and the viability of handing over new powers to the central bank at the start of next year.
Sweden’s Anders Borg also questioned the timetable. “It’s undesirable and not acceptable to have the ambition to take these decisions by year end,” he said.
Spanish minister Luis de Guindos – whose government, like Ireland’s, is a potential beneficiary of the plan – said the timetable for a deal by year end should be maintained. French minister Pierre Moscovici reiterated the argument that there no time to waste and Italian minister Vittorio Grilli made it clear that Rome was backing Mr Barnier.
