EU argues over next steps after bank supervisor

BRUSSELS Fri Dec 14, 2012 6:58am IST

BRUSSELS (Reuters) - With the pressure off after finance ministers clinched a significant agreement on a single banking supervisor, European Union leaders differed widely at a summit on Thursday over the next steps for their troubled currency union.

Before tucking into marinated salmon with fromage blanc and pan-fried turbot with boiled pumpkin, the 27 leaders argued along well-worn lines over banking resolution, deficit reduction and a common euro zone budget, making little headway.

North European creditor nations led by German Chancellor Angela Merkel sought to lay down new red lines to prevent a deal that made the European Central Bank the euro zone's top banking supervisor from leading to new liabilities for their taxpayers.

Merkel told the German parliament before travelling to the summit that Berlin would continue to reject any mutualisation of the debts of either euro zone countries or their banks.

A German delegation source said that in the summit room, she opposed a joint resolution fund for banks at this stage and rejected any big "fiscal capacity" to help euro zone states cope with economic shocks or reward them for structural reforms.

Instead, she said EU countries should concentrate on consolidating their own budgets, according to notes of the meeting and an account provided by one participant.

Merkel was irritated by European Council President Herman Van Rompuy's proposals for a three-stage drive towards greater fiscal, economic and political union, saying he had gone too far without consulting member states, the source said.

"When we talk about the function of shock absorption, we are talking about 80-100 billion euros - where do we get that from?" one participant quoted Merkel as saying.

French President Francois Hollande called for financial incentives for euro zone countries to undertake reforms and backed an Italian suggestion to loosen the way the EU calculates budget deficits by exempting public investment.

The leaders of Spain and Italy, the two big southern states fighting to retain market access and overcome a recession deepened by austerity measures, pressed for more generous euro zone funding to reward economic reforms.

Van Rompuy, chairing the summit, warned the leaders against complacency, saying: "We have a currency that is a first class reserve currency and an economic and monetary union that is second-class. As long as we don't fix this we are vulnerable."

A diplomat reporting from the chamber said Van Rompuy told the heads of state and government that a single banking supervisor would be ineffective if there was not rapid agreement on a mechanism for resolving failing banks.

European Central Bank President Mario Draghi urged the leaders to speed up reforms of labor markets, pension and welfare systems and liberalize services, without easing fiscal discipline.

"If in this context the world sees that governments loosen policy, we will quickly lose credibility," he was quoted as saying.

Non-euro states led by Britain and Poland appealed to the euro zone leaders to focus on preserving and completing the European single market and avoiding initiatives that would increase the divide between euro "ins" and "outs".

British Prime Minister David Cameron said London wanted to help the euro zone move forward in integration but there must be flexibility for other members who did not wish to join the euro.

(Additional reporting by Mark John; Writing by Paul Taylor; editing by Luke Baker)

Photo

After wave of QE, onus shifts to leaders to boost economy

DAVOS, Switzerland - Central banks have done their best to rescue the world economy by printing money and politicians must now act fast to enact structural reforms and pro-investment policies to boost growth, central bankers said on Saturday.

Barack Obama in India

Reuters Showcase

Coal Mining

Coal Mining

India to open coal to commercial mining firms soon, minister says  Full Article 

RBI Loan Rules

RBI Loan Rules

RBI relaxes overseas loan recast rules   Full Article 

E-commerce Firms

E-commerce Firms

Amazon, e-commerce rivals fuel commercial property boom in India  Full Article 

Growth Forecasts

Growth Forecasts

Indian economic growth forecasts pegged back, despite rate cuts: Reuters Poll.  Full Article 

Uber is Back

Uber is Back

Uber back in Delhi; govt says must await approval.  Full Article 

Markets at Record

Markets at Record

Sensex rises to record after ECB stimulus programme.  Full Article 

Pharma Sector

Pharma Sector

Ipca Labs hit by FDA ban on plant for standard violations.  Full Article | Related Story 

Forex Reserves

Forex Reserves

India FX reserves at record high as RBI fortifies defences  Full Article 

QE for Euro Zone

QE for Euro Zone

ECB launches 1 trillion euro rescue plan to revive euro economy.  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device  Full Coverage