Merkel's coalition partners side with MEPs on EU bank fund

BRUSSELS - Hard fought concessions won by German finance minister Wolfgang Schaeuble on the EU's banking union plans have come under friendly fire from his social democrat coalition partners.

Under a painfully agreed compromise reached in December to accommodate Schaueble's demands that the German taxpayer should not be put on the hook for bank liabilities across the eurozone, a single resolution fund to eventually be worth €55bn, will be built up over a ten-year period.

Meanwhile, its use will be subject to the terms of an intergovernmental agreement which puts the emphasis on national governments covering the costs of their own banks.

National finance officials held their first formal negotiations on the terms of the agreement in Brussels earlier this week and hope to complete the text in time for ministers to sign it off in early March.

The single resolution fund, combined with a new authority tasked with deciding whether and when to shut down a bank, is the centrepiece of the EU's ambitious banking union framework.

However, in a letter to the European Parliament released on Friday (31 January), SPD finance spokesman, Carsten Schneider, criticised the 10-year transition period as much too long and the complex decision-making structure which could see several hundred officials involved in deciding on a bank's future.

"The aim must be to establish the fund as a European fund as quickly as possible, and to move away from the complicated interplay between the compartments and the common fund," he said.

He also called for the fund to be allowed to borrow on the financial markets.

Although Schnieder's criticisms are unlikely to alter Berlin's negotiating position, it raises clear tensions within chancellor Angela Merkel's government. The social democrats joined Merkel in a 'grand coalition' after the Free Democrats, Merkel's previous coalition partners, were wiped out in last October's Bundestag elections.

It will also offer hope to MEPs, as well as a number of other EU finance ministers, who support a more ambitious time-frame and clearer structure for the fund.

Although the parliament has no powers to block an intergovernmental agreement between governments, its support is required to agree the regulation which includes the bulk of the reforms.

MEPs and representatives of the Greek EU presidency will hold their fourth 'trialogue' meeting aimed at brokering a deal in Strasbourg next week, with the parliament's negotiating team threatening to hold the package up until the next legislative term unless they secure concessions.

MEPs are demanding a fully mutualised fund by 2018 and a centralised resolution authority. They also want the fund to be able to tap the markets as well as the EU's €500 billion bailout fund, the European Stability Mechanism.

Meanwhile, in a letter to European Commission president Jose Manuel Barroso in January, deputies issued a joint statement saying the parliament "firmly rejects" plans for a third intergovernmental treaty in less than three years.

"The current state of play in the negotiations is not promising, given the wide differences between the Council and Parliament, meaning that no deal before the European elections in May is a distinct possibility," added MEPs.