MNI: EU Banking Union Push As Window For Deal Closes-Official

Eurogroup Chair Paschal Donohoe will make a fresh push for agreement on the final pillars of European Banking Union at a virtual meeting of finance ministers on May 3, with a senior EU official telling MNI that a deal will not be easy and if this attempt is unsuccessful no further progress may be possible for years.

Under the two-phase draft compromise proposal, a European fund would backstop national deposit guarantee schemes and measures be taken to increase the transparency of banks’ sovereign holdings by as soon as 2025. Phase one would also include efforts to harmonise bank resolution and state aid frameworks.

Phase two, starting by 2028 if member states give the go-ahead, would see the gradual introduction of reinsurance-based EU deposit insurance and charges on high concentrations of sovereign holdings.

POLITICALLY CHALLENGING

A senior EU official said the plan was not ‘completely new”, and that securing agreement on Banking Union would prove “politically challenging”, especially given the current geopolitical and market situation.
“The main elements have been prepared over many months of discussions and intensive contacts between member states”, the official said, noting that unless agreement is secured now, the cycle of EU and national elections would make a deal impossible for several years.

Efforts to conclude Banking Union have been stalled by Germany’s reluctance to support an EU-wide deposit insurance scheme, and by resistance from countries such as Italy to adjusting rules allowing banks to hold sovereign bonds at zero risk weights.

Should ministers agree on Donohoe’s plan, the EU Commission will propose a legislative package on the four key pillars of the banking Union before the end of this year: crisis management; cross-border banking groups; deposit insurance and diversity of sovereign bond holdings.