MEPs and member states clash over financial rules

Concern over Council’s approach to negotiations.

The determination of members of the European Parliament to exert their influence over the final shape of three crucial pieces of economic and financial legislation has made negotiations trickier than expected.

The Parliament is unhappy about the direction taken by member states in their collective approach to legislation to establish a single bank supervisor, introduce prudential requirements for banks (known as CRD IV), and to toughen European Union-level oversight of national budgets (known as the ‘two-pack’).

The package of two regulations setting up the single bank supervisory mechanism is the most recent of these to go before negotiators from the Parliament and the Council. But it, too, is in danger of becoming bogged down by the type of disagreement that has hit CRD IV and two-pack discussions.

Parliament negotiators, who have been in discussion with the Council since the start of the year, had hoped to wrap up a deal on the supervision mechanism during talks on Monday (28 January), but that proved elusive.

The proposal consists of two regulations. One gives the European Central Bank (ECB) authority to supervise banks and needs the Parliament only to be consulted. The second regulation, which changes some of the workings of the European Banking Authority (EBA), the pan-European Union regulator, needs approval by the Parliament.

Since the two pieces of legislation are being processed together, MEPs can influence both. One of the main sticking-points is the effect that the rules could have on non-eurozone countries that want to join the supervisory system. Because the ECB has no jurisdiction under EU law over non-eurozone member states, new rules had to be drawn up.

A compromise struck between member states would see all decisions taken by the ECB’s new supervisory board adopted unless the ECB governing council objects. If a non-eurozone country disagrees with a governing council decision, it can choose to leave the single supervisory mechanism. It would not be allowed back in for three years.

Many in the Parliament are unhappy with this compromise. They do not want countries to have the opportunity to leave if they do not like a decision. Some believe that, at the very least, the ‘lock-out’ period should be longer than three years. “It raises the prospect of a two-class mechanism,” said Sven Giegold, a German Green MEP, who is one of the Parliament’s negotiators. He said that the Council had “taken too far” attempts to shape the mechanism to make it attractive for non-eurozone member states. “If member states can threaten to leave, this does not lead to closer integration. This is Cameron-style and I don’t like it.”

Other pieces of draft legislation have been on the negotiating table for much longer. Talks between the two sides on CRD IV – which implements the global Basel III banking rules – have been going on since May. Further meetings are scheduled for today (31 January) and for next week during the Parliament’s plenary session in Strasbourg.

Significant areas of disagreement remain on the flexibility of member states to increase banks’ capital buffers and on the Parliament’s determination to include in the legislation a cap on bankers’ bonuses.

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MEPs are also exerting influence over discussions on the ‘two-pack’, which have been taking place since May. The legislation would increase EU monitoring of the eurozone’s national draft budget plans, and enhance surveillance of eurozone countries experiencing financial difficulties.

Negotiation on all three pieces of legislation was taking time, Giegold said, because the Parliament was not a walk-over. “The Council takes ages to agree on dossiers between themselves and then they hope that they will just take it to the Parliament for us to endorse it,” he said. “But those days are gone.”

MEPs and members of the eurozone’s national parliaments met on Tuesday and yesterday (29-30 January) to discuss the European Semester – the yearly cycle of economic policy co-ordination. José Manuel Barroso, the president of the European Commission, and Herman Van Rompuy, the president of the European Council, took part in the debate, which was led by the MEPs who chair the European Parliament’s economic and monetary affairs, budgets and employment committees.

Work on this year’s semester will begin in earnest at the European Council on 14-15 March, when leaders of member states will approve guidance for economic national policies based on the Commission’s annual growth survey.