Brussels, 14/04/2016 (Agence Europe) - The 'single market' legal basis is adequate to establish the European Deposit Insurance Scheme (EDIS), but it would also be possible to go down the inter-governmental route for certain provisions of the legislative proposal which would not be harmonised, according to the lawyers of the Council of the EU.
On the basis of a proposal of the Netherlands, the legal services of the Council were mandated to determine whether the 'single market' legal basis (article 114 of the TFEU treaty), which the European Commission used in its proposed regulation to bring in the EDIS system, was adequate.
The line of argument used by the legal experts in their legal opinion dated Tuesday 12 April and of which EUROPE has had sight is very much along the lines of the one they developed when they were consulted at the time the 'resolution' plank of Banking Union in the Eurozone was being put together.
The Commission is proposing three stages to set the EDIS system in place (see EUROPE 11437): - between 2017 and 2020, a reinsurance mechanism would absorb only the losses a national deposit guarantee scheme is unable to absorb; - between 2020 and 2024, a co-insurance mechanism would kick in from the first euro of losses absorbed by a bank (the proportion of the annual contribution to the mechanism which would be used to absorb losses would rise from 20% to 100%, in annual increments of 16%); - after 2024, the mechanism would be fully pooled and a future European bank deposit guarantee fund would have a capacity in the region of €43 billion (0.8% of bank deposits covered within the Eurozone). It will be the responsibility of the Single Resolution Board (ESRB), the European agency responsible for managing the Single Resolution Fund (SRF), to steer the European deposit guarantee fund.
The experts note that the ESRB board will have centralised decision-making powers aiming to ensure a standard application of the bank deposit protection rules, an element which is “essential for the completion of the single market in financial services”. These centralised powers will be relevant in the event of decisions relating to the terms for the intervention of the future fund, setting the target level of the fund and the ex-ante and ex-post contributions the banks will make to the fund. Covering such things as the losses of national deposit guarantee schemes, the decisions made will also contribute to the process of harmonisation in the financial field and to financial stability, the experts stress. Additionally, as the financing of the future fund will under no circumstances engage the budgetary liability of Eurozone countries, either directly or via the EU budget, they feel that article 114 is the right legal basis to raise the banks' contributions.
“The fact that article 114 TFEU provides a legal basis for the proposal does not mean that member states can refrain from using it for part of the proposal and decide to proceed through an agreement of international public law concerning certain parts that are the object of the proposal”, the experts however add. “This requires as a precondition that the EDIS regulation leaves certain competencies unharmonised”, they go on to explain, but do not specify what these competencies, which would remain the responsibility of the member states, might be. They stress that recourse to the inter-governmental method would have to be scrupulously governed by clauses on the primacy of EU law and an undertaking to include a possible treaty in the Community scope within a reasonable period of time.
When the 'resolution' plank of Banking Union was created, Germany imposed an inter-governmental treaty partly governing the SRF fund, which has been up and running since January 2016. Its approach seems to be the same for the 'deposit guarantee' plank, the third pillar of Banking Union in the Eurozone, its finance minister having challenged the legal basis underlying the legislative proposal on the table (see EUROPE 11448). This dossier may be discussed during the talks of the European finance ministers on the sharing and reduction of financial risks, to be held in Amsterdam next week. (Original version in French by Mathieu Bion)