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E.U. Leaders Hail Accord on Banking Supervision E.U. Leaders Hail Accord on Banking Supervision
(about 3 hours later)
BRUSSELS — European Union leaders on Thursday hailed an agreement to place banks in the euro area under a single supervisor, calling it a concrete measure to maintain the viability of the currency as well as a step toward a broader economic union. BRUSSELS — E.U. leaders gathering here Thursday for their year-end summit meeting hailed an agreement to place euro zone banks under a single supervisor, calling it a concrete measure to maintain the viability of the currency as well as a step in laying the groundwork for a broader economic union.
The deal’s importance “cannot be appreciated highly enough,” Chancellor Angela Merkel told the Bundestag, the lower house of the German Parliament. The pact was hashed out in an all-night session of finance ministers that ended Thursday morning after France and Germany made significant compromises. Under the agreement, between 100 and 200 large banks in the euro zone will fall under the direct supervision of the European Central Bank.
“Europe and the euro area are providing proof that they are able to meet the challenges they face,” François Hollande, the French president, said in a statement. A round of talks a week earlier broke up amid French-German discord over how many banks in the currency union should be covered by the new system.
In another sign of renewed efforts to shore up the euro, finance ministers and international officials approved the release of further aid to Greece, including long-delayed payments and other aid totaling nearly €50 billion, or $65 billion, that is crucial for the government to avoid defaulting on its debts. In a concession to Germany, the finance ministers agreed that thousands of smaller banks would be primarily overseen by national regulators. But to satisfy the French, who wanted all euro zone banks to be held accountable, the E.C.B. would be able to take over supervision of any bank in the region at any time.
“The sacrifices of the Greek people have not been in vain,” Prime Minister Antonis Samaras said, referring to stringent austerity measures Greece had adopted in order to obtain the aid. The agreement by the finance ministers, which still requires the approval of the European Parliament and some national parliaments including the German Bundestag, made it possible for E.U. leaders arriving here later Thursday to gather in a spirit unity.
“Today is not only a new day for Greece, it is indeed a new day for Europe,” Mr. Samaras said in Brussels ahead of a two-day summit meeting of European leaders. “It’s a good day for Europe,” said François Hollande, the French president. “The crisis came from the banks, and mechanisms have been put in place that will mean nothing is as it was before.”
The agreement on new banking supervision would put between 100 and 200 major banks under the direct oversight of the European Central Bank, leaving thousands of smaller institutions to be overseen primarily by national regulators. Angela Merkel, the German chancellor, said the agreement was “a big step toward more trust and confidence in the euro zone.” The summit meeting could now focus “on strengthening economic coordination” and “set out a road map for the coming months,” she added.
But E.U. finance ministers, who reached a deal after meeting for 14 hours late Wednesday and early Thursday, insisted that the E.C.B. would be able to take over supervision of any bank in the euro area at any time. In another measure to shore up the euro, the finance ministers approved the release of nearly €50 billion, or $65 billion, in further aid to Greece, including long-delayed payments, support that is crucial for the government to avoid defaulting on its debts.
Mario Draghi, the president of the central bank, said the agreement “marks an important step towards a stable economic and monetary union, and toward further European integration.” “Today is not only a new day for Greece, it is indeed a new day for Europe,” Antonis Samaras, the Greek prime minister, said ahead of the summit meeting.
Mr. Draghi added that governments and the European Commission still had to work on the details of the supervision mechanism, which is to be fully operational by March 2014. But threatening to spoil the upbeat atmosphere were questions over the future leadership of Italy, where the economy is contracting, debt levels are rising, and Silvio Berlusconi, the former prime minister, has threatened to try to reclaim the office in an election next year.
The system must also be approved by the European Parliament and national legislatures before it goes into effect. It remained unclear Thursday whether Mr. Berlusconi would run and, if that were to happen, whether he would campaign on promises to reverse reforms put in place by Mario Monti, the current prime minister. Even so, the re-emergence of Mr. Berlusconi — who attended a summit meeting of center-right parties in Brussels on Thursday — could destabilize markets and even rekindle the financial crisis.
The new system is intended to strengthen oversight of a sector that, under the supervision of national regulators, failed to prevent banks from accumulating so much debt that they put at risk the finances of euro zone states including Ireland and Spain, in turn threatening the future of the currency. The bank supervision plan was first discussed in June and wrapped up in a matter of months — record time by the glacial standards of E.U. rulemaking. The agreement should serve as a springboard for leaders to weigh further steps toward economic integration during their meeting.
The agreement on banking supervision was expected to act as a springboard for European leaders to discuss later on Thursday steps leading to a broader banking union. Such measures would include a unified system, and perhaps shared resources, to ensure failing banks are closed in an orderly fashion. This would be followed, in time, by measures intended to reinforce economic and monetary union, including, possibly, the creation of a fund that could be used to shore up the economies of vulnerable members of the euro zone. Such measures could include a unified system, and perhaps shared euro area resources, to ensure failing banks are closed in an orderly fashion. This could be followed, in time, by measures intended to reinforce economic and monetary union, including, possibly, the creation of a shared fund that could be used to shore up the economies of vulnerable members of the euro zone.
To win France’s agreement on the new banking supervisor, finance ministers agreed that only banks holding more than €30 billion in assets, or assets greater than 20 percent of their country’s gross domestic product, would be directly regulated by the E.C.B. Previously, France and the European Commission had asked that all 6,000 banks in the euro area should be closely regulated by the central bank. Mario Draghi, the president of the European Central Bank, said the agreement on banking supervision “marks an important step towards a stable economic and monetary union, and toward further European integration.” But he noted that governments and the European Commission still had to work on the details of the supervision mechanism.
Germany, facing pressure from a powerful domestic banking lobby trying to shield many small savings banks from closer scrutiny, had sought a reduced remit for the E.C.B. In the end, Germany agreed to allow the central bank to step in and take over supervision of any bank in the euro area at its discretion. The new system should be fully operational by March 2014, but ministers left the door open for the E.C.B. to push that date back if the central bank would “not be ready for exercising in full its tasks.”
The Germans also had concerns that the central bank could be tempted to alter its decisions on monetary policy to make its supervisory job easier. As a compromise, Germany agreed that member states would be given greater scope than originally foreseen to challenge central bank decisions. A series of compromises were needed for finance ministers to reach agreement on banking supervision.
“We succeeded in securing Germany’s key demands,” Ms. Merkel said in Berlin. There would be a “clear separation” between the central bank’s responsibility for monetary policy and for oversight, she added. Initially, France and the European Commission had asked that all 6,000 banks in the euro area should be closely regulated by the central bank. But in a concession, France agreed that only banks holding more than €30 billion in assets, or assets greater than 20 percent of their country’s gross domestic product, would be directly regulated by the E.C.B.
Britain, which is not a member of the euro zone, had sought assurances that the new banking supervisor would not have influence over British banks operating abroad or banks operating in the City of London. Germany, facing pressure from a powerful domestic banking lobby trying to shield many small savings banks from closer scrutiny — and seeking to make the E.C.B.’s job more manageable — sought a reduced remit for the bank. But Germany agreed to let the E.C.B., at its discretion, to step in and take over supervision of any euro zone bank.
Britain agreed to a formula that should free it and other E.U. members outside the euro zone from most, but probably not all, rule-making by the E.C.B. These countries will also be able to challenge E.C.B. decisions on cross-border banking. The Germans and Swedes also had concerns that the central bank could be tempted to alter its decisions on monetary policy to make its supervisory job easier. As a compromise, member states are to be given greater scope than originally foreseen to challenge central bank decisions.
“The safeguards we have secured protect Britain’s interests and the integrity of the European single market,” said the chancellor of the Exchequer, George Osborne. “It shows that when Britain takes a tough stance but based on strong principle, Britain can win the argument and protect our interests.” Britain, which is not a member of the euro zone, sought assurances that the new banking supervisor would not have influence over British banks operating abroad or banks operating in the City of London. Britain agreed to a formula that should allow it and other E.U. members outside the euro zone to counteract most — but probably not all — rulemaking by the E.C.B. These countries will also be able to challenge E.C.B. decisions pertaining to cross-border banking.
For countries including Spain and Ireland, the supervisor is a prerequisite for a new European bailout fund to provide aid directly to their troubled banks. That would allow those governments to avoid weighing down their national balance sheets with yet more debt.. For countries including Spain and Ireland, the supervisor is a prerequisite for a new European bailout fund, the European Stability Mechanism, to provide aid directly to their troubled banks. That would allow those governments to avoid weighing down their national balance sheets with yet more debt. Those countries, along with France, successfully lobbied for direct recapitalization of banks to be mentioned in the agreement.
But any direct recapitalization of banks is only likely to go ahead during 2014, once the supervisor is fully operating, and well after a German general election in October 2013. Still to be clarified is whether the aid could go to banks that have already run into trouble, or whether it would be used only to help lenders that falter in the future. But in a concession to Germany, wary about spending more money on bailouts ahead of national elections in late 2013, and to assuage similar concerns by the Dutch and Finns, the agreement underlined the need for unanimity among states contributing to the bailout fund before any such measures can go ahead.
Providing direct support to banks is a sensitive matter for German taxpayers, who have grown weary of footing most of the bill for the euro zone’s bailouts. Niki Kitsantonis contributed reporting from Athens.
Melissa Eddy contributed reporting from Berlin and Niki Kitsantonis from Athens.