Financial services

Noonan addresses reporters outside the finance ministers' meeting in Luxembourg Friday

When EU finance ministers reconvene on Wednesday for a last-ditch attempt to strike a deal on bank bailout rules after they couldn’t get one in the early morning hours Saturday, it won’t be the first time fights over Europe’s “banking union” have gone to the eleventh hour before a major EU summit.

The last major decision – how many banks would be overseen by a new single supervisor based at the European Central Bank – also took one failed finance ministers’ meeting late last year before they reached a deal on the eve of a summit.

But EU leaders are sounding a bit more cautious this time than last December, since the issues at hand – who will pay for bank bailouts – are far more politically sensitive than last time around. They involve both power and money. Last time, it was just power.

To get an idea of where things lie after the Friday night/Saturday morning 18-hour marathon, we’ve posted this three-page proposal tabled by Michael Noonan, the Irish finance minister who chaired the meeting as holder of the EU’s rotating presidency, near the end of the debate. 

Pity the Lithuanians. When assuming the EU rotating presidency next month they will inherit the mother of all regulatory backlogs, especially when it comes to the financial sector. It is an impossible and thankless task, a numbingly complex pile of half-negotiated, often paralysed and always contentious directives and regulations, which the European Commission is still adding to with some gusto.

There are going to be around 25 financial services files for the Lithuanians to shepherd through, either in negotiations between member states, or directly with the European parliament. The poor Lithuanian officials strong-armed to work the files will have to become instant experts. Most of the proposals will require countless long meetings with member state or parliamentary negotiators; some will need ministerial input and some sacrificial political blood.

The demands could dwarf the resources and time available. After March 2014, the parliament essentially shuts shop for European-wide elections, so the Lithuanian presidency, which runs through the end of this year, is pivotal. Some countries only have one or two financial services attachés covering the bulk of files. Getting MEPs together for talks is like herding cats. Getting them to agree is even harder, especially in this pre-election environment. A lot of the initiatives will not make it through; their fate is then in the hands of the next leaders of the EU’s parliament, commission and council. 

After months of deliberation and some not-so-private sparring with Berlin, the European Commission has pretty much anointed who it wants to be the all-powerful bank bailout and clean-up authority for Europe’s banking union: the European Commission.

This (somewhat predictable) conclusion to its internal policymaking journey is outlined in a paper, seen by the Financial Times, which was distributed to commissioners ahead of their weekly college debate on Wednesday.

There is no sign of Brussels bowing to pressure from Berlin. At the heart of the Commission’s proposed system is a powerful central authority, which has access to a single bailout fund and the clout to shut down a bank even against the wishes of its home state’s government. Brussels wants it operating by 2015.

What about those German concerns that this would breach the EU treaties? Michel Barnier, the EU commissioner responsible for financial issues, concedes in the paper that “only an EU institution” has the legal authority to take important decisions with European effect. Given there is no legal basis to give the European Central Bank this role, the Commission concludes that the only option is to anoint itself as the top resolution authority. 

Dijsselbloem, centre, at a press conference Monday announcing the €10bn Cyprus bailout.

The joint FT-Reuters interview with Dutch finance minister and eurogroup president Jeroen Dijsselbloem after the all-night talks to secure Cyprus’ €10bn bailout has caused a lot of discussion and debate. Dijsselbloem issued a statement after we published saying Cyprus is “a specific case with exceptional challenges” and that “no models or templates” will be used in the future.

To clarify what Dijsselbloem said, we’ve decided to post a transcript of the portion of the interview dealing with how the eurozone might deal with bank failures in the future in light of the Cyprus example.

The interview we conducted alongside Brussels bureau chief Luke Baker of Reuters lasted about 45 minutes, and the portion on bank resolution lasted for about 10 of those minutes. The interview started out with some Cyprus-specific questions – like how capital controls might work, whether Dijsselbloem had learned any lessons form the Cyprus experience – and then shifted to a discussion about whether north-south relations were hampering EU decision making.

That’s when Baker asked the first question about whether Cyprus set a precedent for future bank rescues:

Q: To what extent does the decision taken last night end up setting a template for bank resolution going forward?

A: What we should try to do and what we’ve done last night is what I call “pushing back the risks”. In times of crisis when a risk certainly turns up in a banking sector or an economy, you really have very little choice: you try to take that risk away, and you take it on the public debt. You say, “Okay, we’ll deal with it, give it to us.”

 

It is all about to start. EU finance ministers will for the first time debate bankers’ bonuses. Brussels may say it loves democracy, but the meeting is fixed so the most contentious discussion is off-camera, in secret. George Osborne, UK chancellor, will gingerly defend his position against the planned bonus cap in the public debate afterwards, but by then the outcome of the negotiation will be clear. Think of it more like a post-match interview. This is a short guide to what to expect:

Will Osborne be able to overturn the bonus cap? Without wanting to ruin the suspense, the answer is no. The main terms of the political deal — a 1:1 bonus-to-salary ratio, which can raise to 2:1 with a shareholder vote — is here to stay. The European parliament is wedded to it. And apart from Britain, every other country is willing to compromise. 

Politicians the world over have huffed and puffed about excessive pay at banks since 2008. While remuneration curbs were put in place, nothing fundamentally challenged bank operations, or their ultimate flexibility to reward staff. The European Parliament has bucked that trend with the mother of all bonus clampdowns. Here are five key questions on the cap: how it works, how you can avoid it, whether it will really pass and what it means for Britain and the City.

1. How is the cap calculated and applied? 

The EU clampdown on bankers’ bonuses is nigh. The final talks (or so diplomats hope) have begun and the room is booked until midnight. The frantic politicking earlier today certainly indicates the deal is close. This blog includes some of the latest political intelligence and a few tentative predictions. But be warned: the Brussels blog would not wager its bonus on the outcome.

1) Britain is looking isolated. It is a complex picture, but the UK is running short of allies, especially on the terms of the cap on variable-fixed pay. Most member states are happy to compromise with the European parliament, which is leading the bonus charge. Berlin is showing no appetite for running to London’s rescue. Even Sweden, the UK’s main friend on financial issues, was relatively silent at a meeting yesterday. The Netherlands said it could even accept a tougher crackdown. Ireland want a deal this evening. 

Should bankers breathe a sigh of relief over the deadlock in EU talks last night on introducing a bonus cap?

The British are certainly happy to have a bit more time to achieve the improbable and turn opinion in Brussels against strict limits on bonuses that are double or triple fixed pay.

At the same time, the omens from parliament are looking no better for the City’s finest. Just look at the tone of this statement the MEPs spearheading the talks put out today:

We are ready to give the Council one more week for internal discussions. If – after ten months of negotiations – a viable compromise cannot be found on 27 February, we do not see any other possibility than to ask the plenary of the European Parliament to vote on its position.

The threat of a vote is mainly symbolic. But there is no sign of backing down. Indeed parliament is upping the ante. They are pressuring the EU member states — who are represented by the Irish presidency — to override the hold-outs to a deal. It is, in other words, a challenge to force the Brits into line or outvote them within the week. High stakes. 

Outgoing Cypriot president Demetris Christofias addresses the European Parliament Tuesday.

In this morning’s dead-tree edition of the FT, fellow Brussels Bloggger Josh Chaffin has a report on Cypriot officials launching an offensive to convince other eurozone governments that it is no longer a haven for money laundering.

The effort has included summoning EU ambassadors in Nicosia to the Cypriot finance ministry, where they were given a 23-slide presentation detailing the country’s anit-money laundering efforts. As is our practice here at the Brussels Blog, we’ve decided to post a copy of the report here

Jonathan Faull, EU Commission's director general for internal market and services

Today’s instalment of the FT series on banking union turned to Britain and its troubled relations with the EU on financial services. We quoted Jonathan Faull in that piece, who runs the European Commission department overseeing the banking union plans.

He is British to boot and as close as it comes to a Brussels celebrity, so we thought it would be worth publishing our entire Q&A since he has some strong views about Britain’s role in the EU. Note the questions were partly intended to provoke; Faull characteristically kept his cool.

1. Are the views of Christian Noyer, the French central bank governor, compatible with the single market? Would the Commission stop the eurozone forcing most euro business to be within the euro area?

The EU’s financial services policy and legislation are for the whole single market, except for specific measures for the banking union being developed for the eurozone and volunteers among other EU countries. No banking union measures will discriminate against non-participating member states. The EU treaties are binding on all members and do not allow discrimination on grounds of location of business within the EU. What happens “naturally” as markets develop is another story. London has to compete!

2. Are there any genuine UK safeguards against the power of the banking union that would not fragment the single market? What are the dangers if the UK is not realistic in what it asks for?