EU ministers baulk at banking reform
EU finance ministers on Thursday again dampened expectations on completing major banking reforms in Europe, with big divisions between Germany and Italy on how to move forward.
“We must never lose hope. I don’t hide from you that it’s a difficult negotiation,” French Finance Minister Bruno Le Maire said, as he arrived for talks in Luxembourg.
At the meeting, ministers were supposed to finalise a timetable for completing the EU’s banking union, a major step in advancing European economic unity that was launched in the heart of the financial crisis.
The missing piece of the project is the creation of a common European deposit insurance that would cast a continent-wide safety net for customers hit by failing banks.
Germany has long resisted the idea, however, with public opinion dead set against seeing government money going to save depositors in other European countries.
In exchange for giving ground on the issue, Germany and others are demanding that countries like Italy decouple the stability of their banking systems from holdings in national debt.
This would address something known as the “doom loop”, where banks in Europe are allowed to hold sovereign debt bonds as super-safe assets to meet the demands of banking regulators.
Heavily indebted, Italy refuses to give ground on this demand, afraid it could spark a national banking crisis and plunge the country into economic chaos.
“There is further work that needs to be done, further compromises that have to be identified and then delivered,” said Eurogroup chief Paschal Donohoe, who is leading the negotiations.
“With the time that is left, it wasn’t sufficient to deliver what I believe was critical in such a work plan,” added Donohoe, who is also Irish finance minister.
The election calendar in Europe is making a breakthrough even more difficult, officials said, with Germany set to choose a new chancellor in the autumn.
A senior eurozone official said the setback was not a “big drama” and that Donohoe was determined to keep working on finding a compromise.