Financial Times: Eurozone ministers divided over banking union negotiations

05 December 2019

Brussels has warned that member states are sharply divided after Eurozone finance ministers failed to agree on plans to accelerate the completion of a bloc-wide banking union, casting doubt over completion of the project.

The planned “road map” for banking union was devised during the sovereign debt crisis to boost financial stability by centralising supervision and crisis management of banks.

As part of the plan Germany proposed to introduce a deposit insurance scheme, but this was met with opposition from Italy, among other member states, because of the conditions Berlin has attached.

Paolo Gentiloni, the EU’s economy commissioner, said German finance minister Olaf Scholz’s proposal had been useful in the debate but some of the conditions introduced by Berlin were “unacceptable” for some other member states, adding: “This was made very clear yesterday in the discussion.”

The setback illustrates the risk that euro area reform will get bogged down in domestic political wrangling as coalition governments in member states including Italy and Germany struggle to coalesce around key reforms.

Hopes were raised in recent weeks that there would be a breakthrough on the banking union proposals after Mr Scholz offered his grand bargain. At the heart of his proposals was an offer to drop German opposition to the last major missing element of the banking union concept — a common euro area deposit protection system.

This offer made on the condition that eurozone member states backed other elements of the plan that are more popular in Germany, including capital requirements for banks when they buy euro area governments’ bonds — a proposal that is particularly unpalatable in southern European countries including Italy.

Valdis Dombrovskis, executive vice-president at the commission and the body’s regulation chief, told reporters after the meetings that the outcome had been disappointing, and that the eurogroup would not be able to report substantial progress.

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