The European Council meeting of 28/29 June 2012 may enter history as having advanced further towards a deeper union among European countries, accompanied by a progressive split among Euro and non-Euro members.
It has also demonstrated the ever rising complexity of decisions taken. Shaping European policy has never been easy and keeps becoming more and more difficult to understand for the rank and file citizens, who depend on decision makers for clearly explaining the substance of policy and for media interpreting it.
The last European Council has failed in both respects.
It is rare for the European Council to work until the early morning. Last week the 17 Euro-heads of government worked overnight, pressured by Italy and Spain to find solutions for high interest rates on public debt and the recapitalisation of the banking sector.
The result of six hours of deliberations was a terse “Euro Area Summit Statement”:
- It is imperative to break the vicious circle between banks and sovereigns.
- The Commission will present Proposals on the the basis of Article 127 (6) of the Lisbon Treaty for a single supervisory mechanism shortly.
- When an effective single supervisory mechanism is established, involving the ECB, the ESM could have the possibility to recapitalise banks directly. This would rely on appropriate conditionality and be formalised in a Memorandum of Understanding.
- We urge the rapid conclusion of the Memorandum of Understanding attached to the financial support to Spain for recapitalisation of its banking sector.
Rarely have nine short sentences emanating from a meeting of 17 heads of government provoked a 3-5 per cent jump of share prices across Europe, a 0.5 per cent decline of yields on Spanish and Italian bonds and so much euphoria in Italy and Spain on one hand and profound disappointment in Germany on the other.
The Statement is revolutionary on two points:
- Subject to an amendment of the ESM Treaty, it would allow assistance for banking recapitalisation without passing via member states. (Article 15 (1)
- It puts at stake the European Banking Authority’s role for banking supervision.
- A “federal” supervisory mechanism is in place since 2010, with the ECB chairing the European Risk Assessment Board and the EBA chairing a network of national banking supervisors.
- Article 15 of the ESM Treaty provides the possibility for the Board of Governors to grant financial assistance for the recapitalisation of financial institutions, through loans to an ESM Member, subject to conditionality to be detailed in a Memorandum of Understanding.
A more in depth explanation by the President of the European Council would have been helpful.
He should have explained that the European Banking Authority has failed to deliver on surveillance. It lacks the authority for in-depth analysis of banks and the courage to lay open evident shortcomings, as the “successful” stress tests in 2010/11 have revealed.
He should also have underlined the urgency of settling the disarray of the banking several member States, while stressing the need for prior amending the ESM Treaty.
The 29. June Euro Area Council meeting did not excel in preparation and organisation. Without prior debate at official level, it has given green light to a major amendment of the ESM Treaty that is in the ratification process by member States. This will not help to shore up citizens`confidence in the reliability of European institutions, especially by citizens in major contributing countries like Germany or Netherlands.
The time has come for the European Institutions to spell a comprehensive road map ahead and stop working piece-meal in an emergency gear.
It would also be helpful for transparency to separate European Council meetings at 27 from those concerning Euro member countries only.
Author : Eberhard Rhein