By Helen Maguire and Alexandra Mayer-Hohdahl –
BRUSSELS — European Union leaders began meeting Thursday to debate how trust should be restored in the crisis-battered eurozone over the long term, with a showdown expected between Germany and France on a joint banking regulator for the currency bloc.
Paris has been pushing for an agreement on banking supervision — a prerequisite for the eurozone’s bailout fund to directly recapitalize banks — by the end of the year, while Berlin says more time is needed to do things right.
German Chancellor Angela Merkel and French President Francois Hollande met separately shortly before the summit with their 25 EU counterparts.
Asked why they had different priorities, Hollande suggested that “the reasons can be found in the electoral calendar.” France just had an election, while Merkel will face voters next year.
“I can understand this difference in calendar but we have a common responsibility, France and Germany,” Hollande said.
“The only decision we have to take, to confirm in fact, is the establishment of the banking union by the end of the year and notably the first stage, which is banking supervision,” he had said earlier.
But Merkel had in the morning insisted in the German parliament that “quality is more important than speed.”
“We have to work very fast, but also very thoroughly,” Merkel told reporters as she arrived for the summit.
She also warned that it would take more than just “completing the legislation for a regulator” for direct recapitalizations to take place.
Spain is most urgently in need of this provision. Banking aid from the European Stability Mechanism bailout fund is being disbursed via Madrid, placing further strain on government balance sheets.
Austrian Chancellor Werner Faymann called for the summit to at least send a convincing message that banking supervision is definitely coming.
“I don’t care so much about whether it will come a few weeks early or a few weeks late. But the signal has to be clear: we want it and we will do it,” he told reporters before the meeting.
“If it’s ready tomorrow, I’m ready to support it — or even tonight,” Finland’s Jyrki Katainen added. “But this is a really challenging issue and the quality is the most important thing.”
Not everyone supports the idea, with Czech Prime Minister Petr Necas, for instance, threatening to block the proposal unless he is granted “guarantees” to protect his country’s banking sector.
Sweden, a non-euro country that would have to give its blessing for the banking supervision plans to proceed, wants them to specify “who is recapitalizing … and who is paying” if a bank is in trouble, Prime Minister Fredrik Reinfeldt said.
“Because that’s what the market wants to know and my taxpayers want to know,” he said. “If you don’t do this right, you don’t solve any problems regarding markets or anything else.”
“There are a lot of questions and uncertainties in the concept,” Lithuanian President Dalia Grybauskaite added. “We need general supervision, but … a lot of details are unclear.”
The bank supervisor would be the first step towards deeper integration of the eurozone, which is considered key to restore trust in the currency bloc.
Germany this week also proposed that far-reaching powers be granted to the EU’s monetary affairs commissioner, but the idea did not elicit any immediate backing in public.