Brussels, 26/09/2013 (Agence Europe) - A year before the end of his term of office, EU Internal Market Commissioner Michel Barnier is evasive about his future. He will press ahead with reform of the financial system through agreement on the resolution side of Banking Union before the end of the current European Parliament. He has given an indication to this newsletter and to the Écho of the reforms of the structure of banks to be unveiled in November (MB).
Agence Europe: How do you assess the current state of European banking?
Michel Barnier: A lot of banks already anticipated the Basel rules, some of them many months ago now. Overall, I believe that banking in Europe is more robust than three or four years ago. Huge capitalisation has begun and for the biggest banks, we have reached optimal CET1 capital requirements equivalent to those of the United States, according to figures released by the European Banking Authority (EBA) and ECB at the EU Council of finance ministers in Vilnius last week. For big banks, compared with the regulations, we are €200 billion above the 9% level, €400 billion above the 7% level, but I am not saying that there aren't any problems.
Will the upcoming ECB and EBA assessments of bank health highlight new weaknesses?
It is logical for the ECB to carry out an asset quality review of the banks it is to supervise. This needed to be made coherent with the stress tests that the EBA will carry out in 2014. The truth must be told. If there are weaknesses, then they will have to be corrected. But a worst case scenario is not a certainty.
How will Angela Merkel's re-election affect work on Banking Union?
Her election will not impact on the negotiations. We are in permanent contact with the German authorities, even during the period of forming a new government and I am optimistic that agreement will be reached at the Council by December.
Germany has issues reservations and concerns, and it is not the only country to do so. What I'm interested in is for there to be a resolution authority that is not the European Commission and that is independent and capable of taking decisions. Learning the lessons of Dexia and other cases where bank authorities come together and negotiate around a table, even on a Saturday or Sunday afternoon.
I have proposed a European system with a European board of national authorities. We will discuss both how to decide within the board and the role of the Commission. Several countries fail to understand why the Commission should trigger the process. If anyone comes up with a better idea, I have no problem with that. I am not trying to get the Commission to stick its nose in. I've suggested it for practical and legal reasons.
For Banking Union, could the European Stability Mechanism (ESM) support the Single Resolution Fund initially while it is set up?
The fund will gradually increase over a decade or so. It won't have many cases to deal with. If all the draft legislation had been in force five years ago, we would have had three or four bank crises. I can't say in advance whether the financing from banks will be sufficient. If it is not, then the fund would be able to borrow money. From the markets, or from the ESM. The latter idea, mooted by Jörg Asmussen (ECB executive board member, Ed.) is interesting, but needs to be looked into.
I would say in connection with ESM that it is possible for its operating rules to change to make it an EU body by changing the EU treaty, as Germany desires. If so, one could easily imagine it becoming the resolution authority, but an operational system needs to be introduced now to deal with any crises over the next few years.
Who would make an ideal candidate to chair the new supervisory committee?
I cannot be involved in the shortlist of candidates. The process is under way - the European Parliament is highly involved, as are ministers and central bank governors. They have to be competent, independent and European, and can be competent, independent and European women.
Do you fear that non-euro countries will abstain from Banking Union?
We've done everything to ensure the door is open. Countries that are not in the euro, or not yet in the euro, and which find it in the interest of bank stability to join Banking Union will be able to do so. They will have equal rights within the resolution and supervision authorities. This will apply to countries not in the euro, but whose banks work with the eurozone or where there are a lot of subsidiaries of eurozone banks. It is in the interests of the United Kingdom and Sweden for the eurozone to be stable and that is why they've backed Banking Union. If the eurozone is fragile and unstable, as was the case two years ago, that is bad news for the whole Single Market.
How is reform of the structure of the banking sector getting along?
I've made the G20 roadmap and the draft Banking Union desired by the European Summit the priorities. Will this be enough to stabilise the banking sector? The answer is no. Risks remain that need to be better hived off, better weighted and better managed according to the type of banking in question.
In November, I will unveil a new reform, that will probably come into operation after the European elections. If governments have reasons for dealing with the separation of risk earlier than that, then I will respect that. The proposals I will make will be compatible, even if it goes a little further at times. The bank structural reform law must preserve the diversity of the bank sector, limit risks and take account of laws in the member states. In some cases, we'll be able to make much more progress in the requirements that are set.
How will what has been done in some countries be exceeded? By introducing thresholds beyond which retail and investment banking will have to be separated?
I will take inspiration from the ideas in the Liikanen Report. Proportionality is extremely important in European law precisely in order to respect the diversity of situations. The threshold is the legal expression of the principle of proportionality. You will find this principle in my draft legislation.
All the laws that we have made reduce the scale of bank assets as a proportion of a country's GDP. The GDP to be taken into account, however, is not national GDP but GDP of the eurozone, because Banking Union is the start of a real revolution.
Will the rules introduced over the past five years prevent new crises?
I think that the 28 laws we have proposed cover all sectors - every product and every sector. Above all, powers have been given to supervisory bodies, which can take immediate action. We have built a legislative framework in place of the rule, even at the Commission, of deregulation, an ultra-liberal culture that almost proved fatal.
The most important thing is to get the economy running again. The real response to populism, to deep worry, to extremism is jobs and growth. But you can't make growth out of debt, with volatile, unstable markets. That has all been repaired. Now we need to create the best ecosystem for people who create jobs.
What's been this Commission's greatest success?
Compared with the extraordinary depths of this crisis, which has put millions of people out of work and almost blew the eurozone apart, the greater Commission asset is regulation. The second great success is the new governance system. Economic governance and financial regulation is the two-pronged solution required ahead of any exit from the crisis - and we are now in the process of exiting. Later, we were no longer on our own because the ECB had done its job, but we are in the process of returning to my traditional line of the social market economy.
Some say you will be the next president of the European Commission
That is very touching, but this is not a subject of the moment. I am at the same time a passionate European and a patriot. Now is the time to continue to work and consider the changes to be made in Europe. The time for the election campaign will be next year. I don't know where I will be of the most use, but I will certainly be part of the debate in one form or another.