Brussels, 11/10/2012 (Agence Europe) - The president of the European Council, Herman Van Rompuy, has underlined the need to act and to act fast to set up the single European banking supervision mechanism as the first stage of banking union. He was speaking on Thursday 11 October during the “State of the European Union” conference organised by the Friends of Europe. In his view, reflection on budgetary union, the framework within which the creation of a budget for the eurozone has been put forward, will be a long-term business and it must not interfere in the ongoing talks on the 2014-2020 financial framework. “It is as if we were doing a sprint on the banking union in the midst of a European Monetary Union (EMU) marathon”, he said.
On the strengthening of EMU, the former Belgian prime minister evoked two ideas that appear in the draft conclusions of the European Council on 18 and 19 October (see EUROPE Documents). The eurozone would have its own “fiscal capacity” that could perform “stabilisation functions specific to the eurozone”, Van Rompuy said, explaining that this would be quite separate from the European budget but come within the Community's institutional architecture. That capacity would serve to help its member states to “absorb asymmetric shocks over economic cycles” in order “to limit the adjustment cost in terms of growth and employment”. This, Van Rompuy warned, “must not be mixed up with the European Union's multiannual budget”. A specific budget for the eurozone is, in his eyes, a “long term project” on which the European Council will work in December when it establishes a medium-term road map leading to EMU reinforcement.
France and Germany, the two main eurozone economies, are in principle in favour of the eurozone having its own budget but perhaps do not have the same vision of the destination for funds allocated (see EUROPE 10706). According to some observers, Berlin would see this idea with a more favourable eye if, at lesser cost, it replaces the resolve of Paris, Madrid and Rome to partially pool the public debt of the eurozone countries. During the same conference, the president of the European Commission, José Manuel Barroso, noted that states are showing greater resolve to transfer budgetary and macro-economic surveillance to the European level rather than take action to bring in more solidarity instruments.
Another subject appearing in the draft conclusions of the European Council is the contractual commitment of eurozone countries to make their economic and social policies converge. “Eurozone member states could engage in such arrangements with European institutions on the structural reforms they commit to. These reforms aim at increasing growth and jobs, and they could be supported by temporary and targeted financial incentives”, Van Rompuy said.
Single banking supervision mechanism. During the summit, the president of the European Council will seek to convince all his counterparts that the immediate priority lies in banking union in order to “help alleviate the fragmentation of financial markets and overcome the 'credit drought' that has hit southern Europe”. In his view, an agreement is needed “in the upcoming months” on the single banking supervision mechanism under the aegis of the European Central Bank (ECB). Such a step will allow the “vicious circle” between the banking difficulties and the debt crisis in the eurozone to be broken, in so far as it will open the road to direct recapitalisation of banks in difficulty without being a burden on the public debt of the countries where those financial institutions are established. In line with decisions taken end June during the eurozone summit (see EUROPE 10645), exact arrangements for such recapitalisation will be finalised by the Eurogroup, the summit's preparatory text indicates. Germany, Finland and the Netherlands are opposed to this direct recapitalisation relating to earlier banking crises prior to the creation of the single supervisory mechanism (EUROPE 10696).
The draft conclusions of the European Council fix the objective of reaching a political agreement by the end of the year on single banking supervision, so that the ECB is able to use its new powers, albeit progressively, as soon as the mechanism takes effect. The document, which echoes the acid criticism of several non-eurozone countries (Poland, Sweden, Denmark) who refuse to join a scheme in which they would have no influence (see related article), underlines the importance of ensuring equitable representation and treatment not only for the countries in the eurozone but also for those outside it, but which take part in the mechanism. In order to fully respect the integrity of the internal market, single banking supervision should provide for an effective and non-discriminatory voting system within the European Banking Supervision Authority, including towards countries that are not signed up to the future mechanism.
In parallel, with a view to pursuing banking union, the EU27 will call for rapid progress in inter-institutional talks on legislative proposals to harmonise the national systems for banking restructuring and deposit guarantees. It should be noted that they will call on the legislator to deal separately with the possibility of making it an obligation for national bailout funds and deposit guarantees to help each other out when urgently required.
Compact for growth and employment. Focused on results when economic prospects are gloomy, the European Council will take stock of the state of progress of the “Compact for Growth” endorsed in June at a French initiative. The compact has a budget of €120 billion which includes a €10 billion rise from EIB capital, a reallocation of €55 billion from the structural funds, and the launch of project bonds for the financing of major infrastructure projects up to €4.5 billion.
The EU27 will reiterate their call in favour of completing the internal market, including in the digital sector. Noting the intervention of 11 member states for the creation of a common tax on financial transactions (see EUROPE 10706), they will request additional effort in the tax area, especially when it comes to the harmonisation of corporate tax and savings income tax in and outside the EU. (MB/transl.jl)