Costs must not hit taxpayer, says Berlin

BANKING REFORM:Chancellor Angela Merkel has said she has an open mind on how the costs of Europe's banking union should be shared – once they don't hit the taxpayer.

Her remarks follow signs of a shift in Berlin’s opposition to a public signal of support for Irish debt relief, if this improves the State’s prospects of a smooth return to private debt markets next year.

The German leader also ruled out any attempts at treaty change, requiring a referendum in Ireland, until at least after the 2014 European elections.

Friday’s dawn agreement on a European banking regulator, the first pillar of a banking union, has opened talks on the next: an EU mechanism to wind up ailing banks.

Costs

The German leader said any cost arising from this process “has to be carried by those responsible for banks’ erroneous development”. Asked if she saw this responsibility limited to bank owners or also member states and national regulators, she said: “I mean that, in the first instance, private creditors will end up covering the costs but it will depend in which time frame the costs were collected.

“We want to build up funds that, one day, will make [bank] recapitalisations possible,” added Dr Merkel. “But we will leave the details to the law-making process.”

The German leader insisted there remained a need for further reform efforts, saying 2013 would bring “low growth rates, in some countries negative growth . . . and very, very high unemployment”.

German officials denied Berlin was stepping on the EU reform brake ahead of next September’s general election.

Preparation

They said the postponement of measures proposed by European Council president Herman Van Rompuy – or their removal from yesterday’s summit conclusions – was more a sign of poor preparation of complex policies rather than political procrastination from Berlin. “This is the best that can be expected in the circumstances,” said one official. Many measures such as an EU wind-up law, Berlin said, now hinged on movement on this front from national parliaments – as Berlin has done.

Berlin views as effectively “shelved” another proposal for a pan-European bank deposit guarantee fund, highly contentious in Germany.

Germany rejected outright plans for an ambitious euro zone “solidarity” budget to support countries with crisis-hit budgets; Dr Merkel spoke of a “very limited” fund below €20 billion, possibly raised from a proposed financial transaction tax.

There was disagreement between Berlin and Paris on a proposal for so-called “reform contracts”. National parliaments would enter such agreements with the European Commission to pin down competitiveness-boosting measures. French president François Hollande suggested these contacts would be voluntary.