Can Europe unify over economic crisis?
02:49 - Source: CNN

Story highlights

EU leaders worried eurozone push towards a banking union has stalled

Sets up a confrontation with a more reluctant Germany at a European summit in Brussels

EU leaders meeting in a two-day summit that begins on Thursday

Fears hard-fought credibility gained with investors over the past four months could be lost

Financial Times  — 

EU leaders have expressed alarm that the eurozone’s push towards a banking union has stalled, setting up a confrontation with a more reluctant Germany at a European summit in Brussels.

The group includes the French, Spanish and British leaders as well as José Manuel Barroso, president of the European Commission, and Herman Van Rompuy, president of the European Council, who chairs the two-day summit beginning on Thursday. They are increasingly concerned that recent market calm has sucked the urgency out of the plan.

“Let’s not wobble,” said Mariano Rajoy, Spanish prime minister, at a meeting of centre-right leaders in Bucharest. President François Hollande of France took a dig at Berlin for focusing on longer-term political union while stalling on shorter-term measures.

Without concrete action by year’s end, some officials fear hard-fought credibility gained with investors over the past four months could be lost, and said they will press a German-led group of recalcitrant northern countries to move more quickly.

“The eurozone can only get together and act when the market puts pressure on it,” lamented an EU diplomat from a country allied with Paris. “The things people are being asked to do are very difficult and they don’t want to do them.”

Concern has focused on the inability to agree a way forward on a deal reached in June in which Berlin agreed to allow the eurozone’s €500bn rescue fund to take on debts of failing banks once a new centralised bank supervisor for the single currency is established.

German, Dutch and Finnish finance ministers called the deal into question last month when they insisted that “legacy assets” – such as banks in trouble before the supervisor was established – would be excluded in the rescue scheme, a position that caused howls of protest in Ireland and Spain which both have spent billions bailing out banks.

Direct recapitalisations from the rescue fund, the European Stability Mechanism, would relieve national exchequers of the responsibility for most bank bailouts, wiping significant chunks of those debts off sovereign books.

“If we say we are going to do something we should implement it,” said a senior French official. “That has been one of our problems. It is an issue of credibility. We need to break the vicious circle of sovereign risk and banking risk. Why should we wait?”

A senior German official said the June decision was “unambiguous” that using the ESM for bank recapitalisations would not occur until the supervisor had been proved “effective and established”.

German reluctance has led diplomats involved in detailed talks to become doubtful that a deal is possible before year’s end. One noted Berlin was still sending mid-level officials to talks on the single supervisor; others suggested talks could run for a year or more.

Although Berlin strongly denies dragging its feet, senior officials and diplomats pressing for a fast deal are convinced Germany is raising new objections to draw out the process. Wolfgang Schäuble has questioned whether the ECB can take on the role of supervisor, the legal base for the proposal, and has floated the idea of splitting the European parliament to improve accountability for the new supervisor.

Some officials were particularly alarmed at Mr Schäuble’s pre-summit remarks suggesting more ambitious, long-term plans for EU control over national budgets, saying they could prove a distraction.

“The Germans, on the things that have immediate impact, get cold feet,” said a senior official involved in talks with Berlin.

In an interview with the French daily Le Monde published on Wednesday, Mr Hollande appeared to make a similar point, though he insisted he was not “targeting anyone in particular”.

“It has not escaped my notice that those who are most eager to talk about political union are sometimes those who are most reticent about taking urgent decisions that would make it inevitable,” Mr Hollande said.

A draft of the summit communiqué seen by the FT currently only asserts that eurozone finance ministers will deal with the banks issue “in full respect” of the June deal. Some governments – including Italy and Spain – are urging stronger language, but are reluctant to force the issue with Angela Merkel, German chancellor.

“Merkel has given a very clear signal that if you pick a fight you will lose,” said one EU diplomat.

Additional reporting by Alex Barker in Brussels and Quentin Peel in Berlin