Brussels, 30/11/2012 (Agence Europe) - If they are to meet the deadline set by the European Summit, EU27 finance ministers will have to reach agreement in principle on 4 December on the legislation introducing a eurozone bank supervision system under the aegis of the ECB, but the outcome of the negotiations is uncertain, although agreement on the legislation known as the two-pack to fine-tune the Stability and Growth Pact is more likely. The CRD IV package of draft new rules to boost bank capital requirements will need further rounds of negotiation with the European Parliament after the 4 December ECOFIN Council meeting.
A European source close to the banks supervision package says a compromise is on the table, but what is needed is political will. The finance ministers will be asked to endorse the procedure mooted by the Cypriot Presidency to make it possible to hive off monetary supervision from budget surveillance at the ECB without having to change the EU treaties (see EUROPE 10734). Under the compromise on the negotiating table, the Supervisory Committee (to be set up) would include both euro and non-euro countries which want to participate in the bank supervision system, preparing decisions which would be deemed to be adopted unless the ECB Governing Council, the ultimate decision-making body (but which non-euro members cannot have a seat) rejects the decision within a fortnight (the “silent procedure”). If the Governing Council objects, then countries not in the euro would have the right to withdraw. The source says that this idea gives non-euro countries like Sweden everything they've been asking for. Germany is reported to approve of the idea of changing the treaty to ensure better, fairer, treatment of euro and non-euro countries. The European Parliament has no codecision powers for this, but wants a procedure that would give the Supervisory Committee the duty to amend its decision so that it can be endorsed by the Governing Council (see EUROPE 10741).
The buck for the bank supervision system will stop with the ECB in order to avoid setting up a two-tier system that would necessarily impact on how markets perceive the solidity of banks not included in the system, but the supervisory work will be split between the ECB and national supervisory bodies. The vast majority of countries is said to favour the monitoring of small, local banks (like the German Sparkassen) to remain at national level. There is the question of whether risk and bank size criteria are needed to decide which banks would be monitored nationally. France stresses the importance of respecting the internal market and says that banks monitored solely at national level must not do business outside that country's borders.
Another question to be settled is voting rights at the European Bank Authority (EBA). Member states recognise the need to change voting rights to appease the United Kingdom. The City of London, Europe's biggest financial marketplace, will not be covered by the EBA and it refuses to be bound any longer by decisions arising from the ECB as European supervisor with a seat at the EBA. The idea of granting London the right to veto technical standards in the making has been rejected.
“Two-pack.” All technical problems surrounding boosting of the Stability and Growth Pact have now been settled and all that remains to be done is finding agreement at the Council of Ministers on the wording of a reference to pooling of sovereign debt in order to boost economic and monetary union (as demanded by the European Parliament).
CRD IV. Several questions remain to be settled in the tricky matter of boosting bank capital requirements (see EUROPE 10730), the most major issue being bank bonuses. All member states apart form the United Kingdom understand the need to move towards the Parliament view that bonuses must never be higher than fixed salary. Other outstanding issues include the legal wording of the measure to allow member states to set higher capital requirements than those laid down in EU rules; liquidity ratios and the powers to be granted to the EBA.
The MiFID package (amending market instrument rules) has been taken off the agenda.
Taxation. Two tax questions are on the ECOFIN Council's agenda: - the energy products and electricity directive, making the tax more compliant with EU objectives for energy and tackling climate change; - the directive introducing a rapid reaction mechanism to tackle carrousel VAT fraud (see EUROPE 10667). When countries discover sudden, widescale fraud in any area, the mechanism will enable the Commission to allow the country, within one month, to apply immediate anti-fraud measures without abiding by the VAT Directive. Under the current system, such measures require a unanimous vote from the Council of Ministers. The United Kingdom and Germany are not happy about giving these powers to the European Commission. (MB and FG/transl.fl)