Europe Split on Bank Union

LONDON—Europe is finding out that it is harder to put together a banking union than it is to call for one.

The European Union's new directive on resolving failed banks, a vital element of anything that would constitute a "banking union," ran into a storm of German and British disapproval Wednesday—despite the EU's best attempts to tiptoe around the most sensitive points.

The directive is intended to shift the burden of future bailouts from taxpayers to shareholders and bondholders. It controversially attempts to create an EU-wide safety net by linking all of the resolution funds of the EU's 27 member states, forcing them to make up to 50% of their funds available to meet emergencies in another member state.

But the commission backed away from initial attempts to ask all banks to issue a specific amount of debt that could be "bailed-in" in the event of a failure, seemingly acknowledging that the proposal was too politically sensitive at present.

German bank associations took immediate exception to the draft directive, arguing it unfairly exposed their depositors to risks in weaker banks elsewhere.

"German banks would have no influence over the risks that were taken on in other European banking systems, and should therefore not be liable for them," Gerhard Hofmann, head of the Federal Association of Cooperative Banks, said in a statement that was echoed by Germany's private-banking association.

Earlier this week, Elke Koenig, head of the German banking regulator Bafin, had said that the EU was putting the cart before the horse by trying to form a banking union before a full fiscal union.

The commission had tried to include elements of mutual support across national banking systems in a draft directive on deposit insurance programs last year, only to have it shot down by member states.

The commission's chance of getting support for such schemes now also seems fatally weakened by the way member states have kept most of their rights over determining capital rules for banks.

As a result of that, some countries' banks will be forced by their governments to hold far more capital than other countries', putting them at a competitive disadvantage to banks in countries with lower standards and making them less willing to insure—however indirectly—deposits in less well-capitalized banks elsewhere.

Philip Suttle, chief economist with the International Institute of Finance, a lobby group for large, international banks, dismissed the whole idea Wednesday.

If the 17 euro-zone states were asked what a union would look like, "you'd get 17 different explanations," he said. Given the current, elevated levels of market volatility and stress in the Europe's banking system, "I don't see it as tenable," he said.

In Frankfurt Tuesday, European Central Bank President Mario Draghi made it clear that the notion of a banking union, which he called for last week in the European Parliament, raises huge questions that have yet to be even asked, let alone answered.

At his monthly news conference, Mr. Draghi took issue with calls for Europe's main bailout vehicle, the European Stability Mechanism, to inject capital directly into banks, pointing out that there is no framework yet for defining and policing the conditionality for such aid.

"The issue is, do we really want to have an ESM that becomes a shareholder in banks?" Mr. Draghi said. He noted that governments didn't make any provision for that when they drew up the ESM's rules last year.

The European Financial Stability Facility, which is the ESM's temporary forerunner, is little more than a funding vehicle, borrowing money on the markets before lending it to governments. Decisions on whether to give the money in the first place, and under what conditions, are taken by the Eurogroup of finance ministers, representing all 17 euro-zone governments.

As yet, no one has clearly spelled out what terms a bank such as Spain's Bankia SA, BKIA.MC +2.26%which had to be bailed out last month by Madrid, would have to meet to qualify for an ESM capital injection. Nowhere is it written how the bank's existing shareholders or creditors should be treated. Nor does the ESM have any mandate to hire staff to manage its stakes in any banks it would recapitalize.

Write to Geoffrey T. Smith at geoffrey.smith@dowjones.com

Stupid pet tricks for stupid Eurotrash.

So given Bankia is nationalized (i.e a 'state' bank) how youz gonna' call it a bank bail out and not a state bail out?

Purely academic of course as by the time Eurotards get the camel thru the eye of the needle Greece, Cyprus and Spain will be smoldering piles of bricks.

I hear the Spics are trying to hold on thru June 20 ( presumably after the Buttfucking commies get ejected from Euro unicorn land ) - maybe get some better interest rates to recap their 'banks' lol.

Gonna be a long hot summer for the Continentals

June 20th is my birthday. I can't imagine a better present than videos of bread riots in Madrid

The end result is going to be a fully integrated United States of Europe. With the rich states permanently subsidising the poor states but with the bonus of the rich states having a permanent pool of cheap labour to do the metal bashing and other low end jobs. It'll work after a fashion.

yep theyre working on it
meetings have been scheduled

It was the first official statement from any G7 member country to acknowledge that European Union leaders are actively working on a sweeping plan for deeper political integration,....... BWAHHHHHHH long pressed by the United States and financial markets as a way to underpin the future of the euro currency.

While the United States is anxious to play the role of trusted adviser and not appear to dictate solutions to Europe

as usual the only thing that can save europe is the United States of America not that anything can really save that disastor it'll just prolong the coming upheaval. but if anyone one could do it IT would be us.

as usual thats what european "leaders" are hoiping for anyway.

as usual how to take the advice and the money and still look like youre all big and grown up is always the problem ..... always the tricky part COOCHIE COOCHIE COO

as usual europeans theyre like balls ginnys who never leave moms basement yet claim that theyre adults and leaders of some grandiose muti polor world with a solid currency that looks like it came out of monopoly board box


you should hope for a rommny presidency becasue obama will let you starve kill each other in the streets .

delicious spam gov'nah wot


or being in the modern uk do you prefer your spam in a pita ?

mikgof wrote:

The end result is going to be a fully integrated United States of Europe. With the rich states permanently subsidising the poor states but with the bonus of the rich states having a permanent pool of cheap labour to do the metal bashing and other low end jobs. It'll work after a fashion.

Sounds oddly familiar - only thing missing is more liebenstrum

By mikgof Comments: 10644, member since Tue Feb 17, 2004
On Thu Jun 07, 2012 12:28 AM
The end result is going to be a fully integrated United States of Europe.

LOL. Only if Germans have a new Hitler. Why would Germany want to fully integrate with the countries like Zimbabwe? Greece is not far from it

VAVD wrote:

June 20th is my birthday. I can't imagine a better present than videos of bread riots in Madrid

Starting to get tired of the Greek riots?

pay no attention to the news

the yuan is still not even a blip on the radar when it comes to its share of global exchange transactions 2% tops...... if that ...and theyre still just experimenting ...

a blown open chinese debt market is just a pipe dream and what they played around with last year fell flatter then a frying pan faced chinese girls chest

like the idiot who picked ode to joy as some make believe pipe dream countries national anthem

pipe dream ...
the authoritarian "mercantilist" command economy that spends and builds just to keep growth in the positive and has millions upon millions screaming for free shit and welfare are not running out of tricks and options......its all good

those always make it in the end

theirs still no massive Chinese domestic market that devours everything and anything it can get its hands on


while i can still run velvets for undermarket costs

and they call me the stupid one pfffft

but everything is fine and the euro is solid

no worries

Americas days are numbered .....because of bush


yawn
DINNER