The europeans are setting up a new bailout for bankrupt banks and thereby creating a protective wall for the taxpayers. EU finance ministers agreed on the final pillar of the banking union – the rules for the resolution or restructuring of failing banks – after twelve hours of negotiations on thursday night. However, criticism is coming from the european parliament, which still has to approve the compromise.
Savers will be better protected in the future, taxpayers spared in the event of collapses of financial institutions. During the financial crisis, the EU countries pumped around 1.6 billion euros into ailing financial institutions.
Core stuck is a common pot built up over ten years with bank money. This bank resolution fund is to comprise up to 55 billion euros in the end. A new body, including representatives of the member states, decides whether and how a bank is to be wound up. The EU commission has a right of veto.
EU parliament president martin schulz (SPD) criticized the fact that a new international treaty would be concluded between the participating EU member states for the resolution fund. "It is difficult to imagine that one would strive for a european solution and in the meantime set up an intergovernmental solution."
There will be very complicated negotiations with the people’s representatives, said schulz. According to reports, germany in particular had pressed for the extra treaty because it feared legal action before the federal constitutional court in karlsruhe. Parliament does not fundamentally question banking union. "Within a very short time, we have made the financial markets in europe more stable and more crisis-proof for the future with the joint banking supervision and the europe-wide rules for the protection of savers and the resolution of bankrupt banks," said SPD member of the european parliament peter simon.
The resolution fund could also take out loans in the start-up phase if it was short of money, according to participants in the ministerial meeting. But the money pumped into the system will ultimately have to be paid back by the banks. In the start-up phase, national shares in the fund will remain isolated – only gradually will the pot become a joint european institution.
The new bank resolution system will come in 2016. It supplements the already firmly agreed european banking supervision, which will start in november 2014 as the first pillar of the banking union. Both pillars apply to eurozone countries and non-eurozone countries that voluntarily go along with them.
Negotiators from the EU institutions also agreed in separate negotiations on better protection for savers in europe. Negotiations with the EU parliament have resulted in the complete protection of small savers’ assets of up to 100,000 euros in the event of a banking crisis. In the future, bank customers will be able to access their money within 7 instead of 20 working days.
EU heads of state and government have repeatedly called for an agreement on bank resolution by the end of the year. At their summit meeting in brussel, they no longer had to deal with the extremely complicated issue in detail.
German finance minister wolfgang schauble buries the compromise on bank resolution reached with difficulty. This is the "right contribution to achieve a further stabilization of the financial sector," said the CDU politician. It would still be possible to stop the legislation in the current legislative period of the european parliament. European elections scheduled for next may.
French head of department pierre moscovici spoke of an agreement with historic significance. "The architecture we need to face crises has been created."
The german savings banks and giro association (DSGV) said the compromise was significantly better than earlier proposals. "Thanks to the clear stance of the federal government, a direct or indirect grab into the coffers of other eu countries has been made more difficult," said DSGV president georg fahrenschon. On the other hand, the association continues to view the obligation for all credit institutions to pay into joint resolution funds as "very critical".
Michael kemmer, chief executive of the banking association, said the financial system is more stable for future crises. "Banking union, however, must not mean communitizing national legacy assets". Clean-up work at national level in the aftermath of the financial crisis could at best be facilitated by the new resolution tools.