A fresh euro zone power struggle has broken out after the head of the group of euro zone finance ministers questioned today’s attempt by Brussels to turn itself into the final referee on the viability of euro zone banks.
In draft legislation unveiled today the European commission proposed giving itself the last resort power to order a troubled euro zone bank to close. But the president of the eurogroup, the Dutch finance minister Jeroen Dijsselbloem, immediately challenged the proposals.
Mr Dijsselbloem, who has led a radical policy shift in recent months on the euro zone’s response to four years of crisis, said it was not yet clear who would be granted the crucial powers to resolve, wind up and close down failing euro zone banks, but that the new authority had to be “decisive, effective, and impartial”.
“It’s not completely decided what that authority should look like,” he said. “The main thing is it should be effective. You need to be able to decide overnight, over a weekend.”
The plans also impose tough new curbs on bosses of banks bailed out in the future, limiting their pay to 15 times the national average in the member state.
The European commission in Brussels, the European Central Bank in Frankfurt, the German government in Berlin and others are all at odds over who is to be granted the power to decide what to do about struggling eurozone financial institutions whose dismal performance has contributed hugely to four years of sovereign debt crisis.
The euro zone’s answer is a new permanent banking union, making the ECB the single supervisor of eurozone banks, alongside a banks resolution authority - and perhaps a common eurozone system of guarantees for depositors.
Today’s gambit to give Brussels the final decision on whether to close down a bank will be hotly contested in Berlin and Frankfurt. But Mr Dijsselbloem, president of the eurogroup - the key committee of euro zone finance ministers - since the beginning of the year, ruled out granting the powers to the ECB.
“The supervisory and the resolution authorities should not be the same,” he said.
While the various actors tussle over who gets to take some of the biggest decisions in the single currency area, it is already clear the Dutch social democrat has helped engineer a strategic shift during his first six months presiding over meetings of euro zone finance ministers.
In recent weeks the policy u-turn from bailouts to so-called “bail-ins” has crystallised, shifting the onus of rescuing banks and propping up governments from public money and taxpayers to the banks themselves and their creditors, which will suffer big losses in future emergencies.
“It’s the best way to address risk in the financial system,” said Mr Dijsselbloem, “the only way to get a healthy, responsible financial sector”.
The policy shift means that the euro zone’s €500 billion permanent bailout fund, the European stability mechanism (ESM), is to serve as a backstop for the troubled currency.
Unlike in the past, however, it may never be used. As the ECB prepares to oversee the banking sector, €60 billion of that fund has also been set aside for bank recapitalisation. It is also clear that there is very little intention of using that instrument either.
“The €60 billion cap is mainly to give a signal that the direct recapitalisation is a means of last resort,” said the Dutch minister. “Once again for too long we have been thinking public backstops are standing right in front ... we want to change that. The €60 billion is basically a political message saying it’s going right to the end. Private means private investors. So resolution funds have to be used first. The €60 billion is a political statement saying let’s not start with the ESM.”
If the new system comes into effect late next year, as expected, countries such as Greece, Spain or Ireland will not be able to make retroactive claims on the fund to clean up their government balance sheets after ploughing tens of billions into the banking sector.
Mr Dijsselbloem was strongly criticised for his handling of the €10 billion Cyprus bailout in March and for describing the Cypriot package as the template for future euro zone rescues. But it has since become clear that Cyprus has indeed become a form of model, signalling the shift in emphasis away from taxpayer-funded bailouts to large haircuts for investors, intended to encourage more responsible banking, punish excessive risk-taking and curb casino capitalism.
Guardian Service