Germany and Finland said on Friday the European Commission should not have the final say on when and how a euro zone bank could be closed, a position that could further delay the bloc's banking union project.
A single authority to decide the fate of euro zone problem banks, with a dedicated fund to finance its decisions, is intended to complement the single bank supervisor - the European Central Bank - as part of a banking union that would break the vicious circle between weak banks and indebted governments.
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The ECB is to take up its new responsibilities in autumn of 2014 and EU policymakers are now planning to have the resolution body - which would help or wind up problem banks - ready on January 1, 2015. Until then, bank resolution would be governed by a set of common rules for all national authorities called the Bank Recovery and Resolution Directive.
ECB Executive Board Member Joerg Asmussen said on Friday that the euro zone bailout fund, the European Stability Mechanism, could lend to the resolution fund if necessary in this interim period and then get paid back from the bank contributions as enough money accrues.
But the role of the European Commission remains contentious. It proposed in July that it should have the final say on troubled banks at a pan-European level, even though it could act on the recommendation of a Single Resolution Board that would be made up of representatives of national authorities and the European Central Bank.
Berlin has consistently said those powers should be exercised at a national level.
"Resolution should generally be done by national authorities and not by the EU Commission," German Finance Minister Wolfgang Schaeuble told the Boersen Zeitung newspaper. "It is not an appropriate central resolution authority.
"Instead, where necessary in disputed cases, a central resolution board should be able to take binding decisions when there are conflicts between national resolution authorities," he said.
Germany, reluctant to transfer new powers to the EU executive, has long argued that the creation of the single resolution authority will require a change to the EU treaty to give the new body proper legal grounds.
European Union lawyers said in an opinion prepared for the finance ministers meeting in Vilnius that no treaty change would be necessary if the project ensured the budgetary sovereignty of governments.
The ECB supported that opinion.
"It is also the view of our legal service at the ECB that Article 114 is indeed a solid and robust legal base. That means we now see a consensus among the legal experts of the Council, the Commission and the ECB and this should enable us to move forward," Asmussen told a news conference after the ministers' meeting in which he took part.
Under the Commission proposal, which is to be discussed for the first time by EU finance ministers on Friday and Saturday, the central role of the EU executive is intended to ensure bank resolution decisions are in line with regulations on the EU's single market and state aid and that they safeguard independence and accountability. Finnish Finance Minister Jutta Urpilainen thought differently.
"The Commission's role is one of the issues that we want to discuss. For us it is important that the authority that in future will decide what will be done for troubled banks is as independent as possible and that also its mandate was narrow," Urpilainen said on entering the talks.
"We see that the authority operating under pressure should be as independent as possible. We have not been very excited that the Commission would act as this authority," she said.
The resolution of failing banks is to be financed through regular contributions from banks themselves that would accrue in a special fund, so as not to burden euro zone taxpayers.
But it may take up to 10 years for such a fund to reach sufficient size, policy-makers believe, so a temporary source of money has to be chosen in the meantime.
EU ministers plan to reach a deal on how to set up the single resolution authority by December, when they would start negotiations on the issue with the European Parliament.
"Let's stick to the timeline and finalize it," the chairman of euro zone finance ministers Jeroen Dijsselbloem told reporters. "We should try to focus on the legal basis, on the governance of the resolution authority, governance of the fund and hopefully make some progress."
(Writing by Jan Strupczewski, editing by Mike Peacock/Ruth Pitchford)