Sven Giegold

FT: European Parliament challenges plan for €55bn bank rescue fund

financial-times-logoFinancial Times, 16.01.2014

European Parliament challenges plan for €55bn bank rescue fund

By James Fontanella-Khan in Brussels.

Europe’s landmark deal to establish a common €55bn fund to rescue troubled banks is facing a concerted legal challenge from the European Parliament, which argues the German designed side-pact breaches fundamental EU law.

Lawmakers said in a letter sent to the EU’s rotating presidency that the intergovernmental agreement on the banking union resolution fund is illegal because it bypasses the established legislative processes of the union.

The common front against the pact underlines the difficulty EU member states will have to reach a compromise agreement on the forms by the spring, when the parliament breaks for elections.

EU finance ministers in late December endorsed a blueprint for a common bank resolution regime and fund, the missing piece to a banking union that aims to shore up confidence in the bloc’s lenders. However, it has come under fire for being unwieldy and underfunded. Jack Lew, the US Treasury secretary, said on Thursday: “We don’t think it’s big enough. We don’t think it’s fast enough.”

Berlin, in particular, faces a struggle to preserve the hard-fought concessions it secured against a political assault from the parliament, which must agree the text to enshrine it in law. MEPs want to unwind Germany’s safeguards so that the fund is available sooner, has access to a credit line and is deployed by a more powerful central authority.

The parliament has no formal role in approving the additional side-pact, outside the EU treaties, which sets out how to gradually mutualise and use a joint resolution fund. However, it retains leverage because the majority of the resolution reforms are included in a normal EU legislation, which it must sign off.

The pact was pursued primarily to address German legal concerns, which were not widely shared. In a strongly worded letter, seen by the Financial Times, senior parliament negotiators from all the main parties jointly expressed their “firm disagreement” with the approach.

Sharon Bowles, the chair of the economics and finance committee, has made clear the parliament does not even formally recognise the text. Sven Giegold, a German Green MEP involved in the talks, said: “Without strong changes in the EU Council’s position there will be no deal.”

The resolution fund, which will be paid for by the banks, will gradually merge national resolution funds into a common European one over a decade, until it hits its €55bn target funding level by 2026.

The legislative talks will be difficult on a number of fronts. MEPs are pushing to simplify the resolution decision-making process, which in extreme cases can be highly complex. Parliament is pushing for a stronger, more centralised authority.

A further demand is to accelerate the mutualisation of the fund so it is complete by 2018 rather than 2026. A credit line would also ensure it has access to funding when necessary. These positions are sharply at odds with Berlin.

Ms Bowles said the parliament’s problems in reaching an overall agreement “are far more than just movement” on the suggested side-pact.

For parliament, the resort to an intergovernmental treaty is legally unsound because it is not indispensable and covers reforms initiated by the European Commission. This breaches the EU’s “principle of democracy” by circumventing its main procedures for agreeing law.

Options to address the parliament’s legal objections include shifting all or part of the provisions within the EU treaty – a move that might prove cumbersome to renegotiate and difficult for Germany.


Legal study: Intergovernmental treaty on SRM violates European law and can be challenged in the court

Letter of protest by MEPs to the Greek Council presidency

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