Van Rompuy: final plan to be decided in December

Plans to create a European Banking Union from the start of next year have fallen at the first hurdle, with a decision by the European Council at its meeting this week to change the ambitious timescale.

The meeting, chaired by Herman van Rompuy, president of the EC, agreed to adopt a revised wording that allows the process to start and implementation to follow. It now “invites the legislators to proceed with work on the legislative proposals on the Single Supervisory Mechanism as a matter of priority, with the objective of agreeing on the legislative framework by 1 January 2013. Work on the operational implementation will take place in the course of 2013”.

Informal consultations will continue “on the different issues to be explored”, with a “specific and time-bound roadmap” to be presented at its meeting in December.

This final report and roadmap will also address the issues regarding how institutions outside the eurozone are affected. “The process towards deeper economic and monetary union should build on the EU’s institutional and legal framework and be characterised by openness and transparency towards Member States which do not use the single currency and by respect for the integrity of the Single Market. The final report and roadmap should include concrete proposals for how to achieve this,” said EC.

The shift in timescales seems to have been driven by Germany, which had been sceptical of the ambitious deadlines from the start. But other hurdles face the proposals. Non-eurozone countries – particularly the UK, which is home to the largest portion of the financial services industry – will want their say. The Czech Republic has already said that it will exercise its veto if it does not feel it has sufficient influence in the process.

In the UK, the House of Lords European Union Committee will next week take evidence from Vitor Constâncio, vice-president of the European Central Bank, and Georg Boomgaarden, German Ambassador to the UK, as part of their inquiry into EU proposals for reform of the banking sector.

Constâncio will be asked about proposals for the ECB to have a broader supervisory role over European banks and what impact that could have on European countries such as the UK who are not within the Eurozone. Boomgaarden will be asked to explain the German position regarding proposals for banking union within the EU and how far Germany is prepared to underwrite bank deposits in other Member states.

The EC’s intention with this latest set of proposals was to “give an impulse to on-going work on important legislative proposals, in particular as regards the Single Supervisory Mechanism for the banking sector”.

European regulation specialist Graham Bishop, had a succinct response: “Perhaps the best impulse will be to slow down and prepare a solution that is both technically robust and politically feasible for the ‘outs’ to accept readily.”