This article is from the source 'nytimes' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.nytimes.com/2012/10/19/business/global/at-the-eu-summit-a-focus-on-cohesion.html

The article has changed 7 times. There is an RSS feed of changes available.

Version 5 Version 6
French-German Disputes Could Mar European Summit Leaders Say They Expect Agreement on Aid for Spanish Banks This Year
(about 4 hours later)
BRUSSELS — European Union leaders sought to overcome sharp differences over how to improve supervision of their banks and budgets on Thursday, the start of a two-day summit meeting aimed at resolving the euro zone debt crisis. BRUSSELS — European Union leaders said early Friday that legislation enabling rescue aid to be channeled directly to Spanish banks should be agreed by the end of the year, but they left open critical decisions on how soon it could go into effect.
But with market pressure on their single currency easing, at least for now, there were already signs that leaders could return to a familiar pattern of bickering, which could delay changes that were already negotiated, like creating a single regulator for all euro zone banks. By leaving the start date vague, Germany could shape the legislation over the next three months to delay any use of a new bailout fund to directly recapitalize Spanish lenders until after national elections in September 2013.
One issue at hand is a dispute between France and Germany about whether to create such a supervisor by January, as the European Commission has proposed. Paris is pushing to meet that deadline. The legislation focuses on improving supervision of banks in the euro area by putting them under the aegis of the European Central Bank, and it is one of the tools developed by Europeans aimed at salvaging the euro. The leaders agreed at their last summit in June that the direct recapitalization of banks could go forward once effective supervision by the European Central Bank is in place.
French leaders have also pressed for speedy adoption of legislation to tighten budget discipline across the euro zone, as well as measures to pool at least some of the euro zone countries’ debt. But such direct aid could be an election issue because German citizens have grown weary of paying most of the bill for bailouts, and they are wary of using more funds to help Spanish banks.
At a news conference Friday morning, Chancellor Angela Merkel of Germany would not give a precise start date for the system nor for the direct recapitalization of banks.
Mrs. Merkel said that Mario Draghi, the president of the central bank, had informed leaders that “it will take some time until this banking supervision is up and running.” Mr. Draghi “didn’t give us specific months, but it is not a matter of just one or two, it will take longer,” she added.
The French government and the European Commission have sought to hasten that legislation in order to allow direct recapitalization of some of the euro zone’s most vulnerable banks to start on Jan. 1, 2013.
But François Hollande, the French president, was also unable to give a date for the start of the system and instead said markets should be confident that direct recapitalization of banks would be able to go forward over the course of 2013.
“Weeks or months will be needed for the mechanism to be implemented” once the legislation was completed at the end of 2012, Mr. Hollande told a news conference.
“The worst is over,” he added, seeking to assure investors and citizens that Europe was keeping up momentum to emerge from its financial crisis.
Mrs. Merkel arrived at a two-day summit here insisting that putting some of the bloc’s most vulnerable banks under the single supervisor by January was too ambitious.
After about five hours of talks, the leaders tweaked language in their final report making it clear that they did not expect the new system of bank supervision to be up and running by Jan. 1.
French leaders have also pressed for speedy adoption of European legislation to tighten budget discipline across the euro zone, as well as measures to pool at least some of the euro zone countries’ debt.
Germany, by contrast, has emphasized a more cautious approach and is seeking even greater powers of intervention to enable the most solvent countries to enforce budgetary discipline in the euro zone.Germany, by contrast, has emphasized a more cautious approach and is seeking even greater powers of intervention to enable the most solvent countries to enforce budgetary discipline in the euro zone.
The French-German dispute matters. Agreement between governments in Paris and Berlin is seen as vital to further integration in Europe and for ensuring the survival of the common currency for the 17 countries that use it. The differences between France and Germany matter. Agreement between governments in Paris and Berlin is seen as vital to any steps toward further integration in Europe and for ensuring the survival of the common currency for the 17 European Union countries using it.
Ahead of the Brussels meeting, Chancellor Angela Merkel of Germany signaled the need for a much grander vision for how to secure the longevity of the euro. The creation of a single banking regulator for the euro area was supposed to be a relatively straightforward matter after leaders agreed at a summit meeting in late June to put all lenders in the region under the aegis of the European Central Bank.
“We are of the opinion — and I speak for the whole German government on this — that we could go a step further by giving Europe real rights of intervention in national budgets,” Ms. Merkel told lawmakers in Berlin. The idea was eagerly supported by Ireland and Spain, because it would be a precursor to letting weak banks in those countries tap Europe’s new bailout fund directly, without loading more debt on those countries’ governments.
That earned a tart riposte from President François Hollande of France, who said as he arrived at the meeting that budget intervention “is not on the agenda.” Since June, though, Germany has balked at proposals by the European Commission and France to put all 6,000 lenders in euro zone countries under the supervision of the regulator in a system that would be phased in starting Jan. 1.
“The only decision that will be taken is to set up a banking union by the end of the year and especially the banking supervision,” Mr. Hollande said. The government in Berlin wants to ensure that the central bank has the capacity to do that job, while some German regional leaders are opposed to greater scrutiny of state and local banks by the central bank.
The creation of a single banking regulator for the euro area was supposed to be a relatively straightforward matter after leaders agreed at a summit meeting in late June to put all 6,000 lenders in the region under the authority of the European Central Bank, a system that would be phased in starting Jan. 1. Last month finance ministers from Germany, Finland and the Netherlands set off new alarms with a joint statement proposing that any bank rescues from the bailout fund go only toward future problems.
The idea was eagerly supported by Ireland, Italy and Spain because it would be a precursor to letting weak banks in those countries tap Europe’s new bailout fund directly, without loading more debt on those countries’ governments.
Since June, though, Germany has balked at such proposals by the European Commission and France. Not only does the government in Berlin want to ensure that the central bank has the capacity to do that job, but a number of German regional leaders are also opposed to greater scrutiny of state and local banks by the central bank.
Moreover, last month, finance ministers from Germany, Finland and the Netherlands set off new alarms with a joint statement proposing that any bank rescues from the bailout fund go only toward future problems, rather than helping to clean up current messes.
Non-euro Eastern and Central European countries have their own concerns about a potential run on their banks, which would not be part of the new central system or backstopped by the European bailout fund.Non-euro Eastern and Central European countries have their own concerns about a potential run on their banks, which would not be part of the new central system or backstopped by the European bailout fund.
And then there is Britain, which is a member of the European Union but has its own currency. The British are seeking to secure a voting system that would ensure that decisions cannot be imposed on Britain’s banks by the euro zone countries working together as a bloc. And then there is Britain, which is a European Union member but has its own currency.
And although Britain does not intend to submit its banks to the new supervision system, its prime minister, David Cameron, was expected to press at the meeting for the system to cover a large number of banks and to include plans for a resolution system for shutting down banks and a common deposit-guarantee system. The British are seeking to secure a voting system that would ensure that decisions cannot be imposed on Britain’s banks by the euro zone countries working together as a bloc.
Some diplomats said Germany could signal support for allowing the oversight system to get under way as soon as next year — perhaps in exchange for pledges by other euro area countries for robust supervision of a euro zone-only budget. But they said an overall deal was unlikely. Amid the stalled progress on the banking rules, warnings have been growing louder of a creeping lack of urgency to tackle the most pressing problems still hanging over the euro zone.
“There might be some progress,” said a European diplomat who spoke on the condition of anonymity because the talks were taking place behind closed doors. “But you can say something positive without achieving any progress at all.” A pledge in September by the central bank to buy unlimited quantities of bonds has steadied borrowing costs in some of the most vulnerable euro zone countries like Spain. And while that decision has taken the edge off the crisis, it also could set the scene for a new outbreak of market jitters.
Another French-German dispute focuses on the possible creation of a budget strictly for euro zone countries. France has strongly argued in favor of using that pool of money to fight sudden shocks to individual euro area economies.
Such a weapon would differ in important ways from the new European Stability Mechanism, the bailout fund that held its first board meeting this month, by providing direct aid.
But Germany has emphasized the need for another form of fiscal surveillance, or “contracts,” in exchange for a budget for the euro zone.
Germany also wants any such budget to encourage structural changes rather than be used simply to fight fires.
For all the expected debate, though, there are warnings of a creeping lack of urgency to tackle the most pressing problems still hanging over the euro zone.
A pledge in September by the European Central Bank to buy unlimited quantities of bonds has steadied borrowing costs in some of the most vulnerable euro zone countries like Spain. That decision has taken the edge off the crisis but could set the scene for a new outbreak of market jitters.
“It is very important that the summit now maintains the momentum of reforming the economic and monetary union including the banking union,” Olli Rehn, the European commissioner for economic and monetary affairs, said on Thursday. “Now the political will of member states is tested.”“It is very important that the summit now maintains the momentum of reforming the economic and monetary union including the banking union,” Olli Rehn, the European commissioner for economic and monetary affairs, said on Thursday. “Now the political will of member states is tested.”
In the case of Greece, little is expected from the summit meeting beyond a statement designed to paper over the slow pace of negotiations with Athens, and to lend support for Prime Minister Antonis Samaras. In the case of Greece, little was forthcoming at the summit meeting beyond a statement that appeared intended to paper over the slow pace of negotiations with Athens on the release of more rescue money, and that seemed aimed at lending support for Prime Minister Antonis Samaras.
“The language will welcome action that Saramas has taken, and it will encourage him, but it won’t put pressure on Greece or take the pressure off of Greece,” said one diplomat, who spoke on condition of anonymity ahead of the formal meetings in Brussels. “We welcome the determination of the Greek government to deliver on its commitments and we commend the remarkable efforts by the Greek people,” the leaders said. “Good progress has been made to bring the adjustment program back on track,” they said.