Bloomberg News

EU Leaders May Advance on Pooling Bank, Budget Control at Summit

December 03, 2012

European Union leaders may push farther than ever before toward centralized control over banks and national budgets in a bid to convince markets that they’re serious about taming the bloc’s fiscal crisis.

Leaders of the EU’s 27 nations may for the first time explicitly endorse the creation of a European agency to handle failing euro-area banks when they meet in Brussels Dec. 13-14, according to draft guidelines for summit conclusions prepared by the office of EU President Herman Van Rompuy and obtained by Bloomberg News. They may also take the first practical steps towards a budget for the euro zone, according to the document, dated Nov. 26.

The setting up of a “common resolution authority” with “appropriate” financial backstops is a necessary, accompanying step to the euro area’s plan to establish a single banking supervisor, according to the document. The agency will “ensure that resolution decisions are taken swiftly, impartially and in the best interest of all.”

Both the European Central Bank and the European Commission have called on leaders to put in place common backstops and oversight for banks as a means of separating financial-sector risks from sovereign debt troubles.

Governments agreed in June and October to press ahead with plans to hand the ECB supervision powers over euro-area banks, while remaining largely silent on joint measures to oversee and manage failing lenders.

‘Fiscal Capacity’

Finance ministers tomorrow will seek to thrash out a deal on the supervisor plan, including the rights for non-euro nations that seek to participate in the system.

According to the document, EU leaders may call on the commission to carry out a feasibility study for a euro-zone budget, and “develop its specific operational features.” The budget would help finance national efforts to improve competitiveness.

German Chancellor Angela Merkel has supported the idea of a euro-area budget, known as “fiscal capacity,” partly to head off more ambitious moves toward joint borrowing by euro countries.

Backers of joint borrowing, such as France and Italy, see a common budget as the best way of getting there.

German demands were evident in separate language in the document calling for signed contracts that would bind euro countries to reforms that boost growth and jobs without running up deficits. The commission will “develop and propose specific ways to put in place such contractual arrangements,” the document said.

‘Two Tracks’

Speaking to a European Parliament committee in Brussels today, French Finance Minister Pierre Moscovici opposed the German approach of more economic discipline now and rewards from a euro-zone budget later. France wants the euro budget to pay out benefits such as unemployment insurance.

“We have to advance together on these two tracks,” Moscovici said.

The commission wants to move as fast as possible, calling last week for a euro-area financing instrument by mid-2014. It urged the sale of common euro bills by the end of 2017, to be followed by the setup of an “autonomous” euro-zone budget to help countries absorb economic shocks.

To contact the reporter on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net


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