Barnier Seeks ‘Political Will’ on Bank Union

EU finance ministers must urgently dispel doubts over their "political will" to create a single bank supervisor so talks do not drag on and upset "fragile markets", the official spearheading the reforms has warned.

Michel Barnier, European commissioner in charge of regulatory reform
Michel Barnier, European commissioner in charge of regulatory reform

In a pointed intervention ahead of a critical fortnight for the eurozone's nascent banking union, Michel Barnier, the EU commissioner who oversees financial regulation, told ministers: "Now is the time to decide."

The French commissioner's plea came in a Financial Times interview where he backed a "maximum ceiling" on bankers' bonuses relative to fixed pay, found fault with banking union safeguards demanded by the UK, and argued EU treaties could eventually be changed to reinforce the new supervision regime.

Banking union talks have badly stalled in recent weeks as Germany, Sweden and others restate fundamental concerns, ranging from the supervisor's powers to the disenfranchisement of non-eurozone members. Some senior negotiators expect the year-end deadline to be missed.

While a German-led bloc insists its priority is ensuring quality, there is growing frustration in Brussels at alleged foot-dragging, especially since EU leaders endorsed the framework and timetable. A meeting of finance ministers next week will be an important test of whether a deal is possible in 2012.

While avoiding direct criticism, Mr. Barnier said ministers received "loud and clear" instructions from two EU summits.

"We need to meet a [December] deadline set by the heads of state, we need a political decision and that is possible," he said. "There is no obstacle that is insurmountable today. There is no decision that cannot be taken before the end of the year – if there is a political will.

"The markets are not complacent; they remain vigilant and watchful . . . We need to deliver now," he said, warning of the "fragile" situation.

Mr. Barnier expresses understanding for German worries – namely the European Central Bank's remit over small banks – and Sweden's view that the current EU treaties are a poor base for the reform, given the restrictions on the rights of non-euro countries that join. Berlin also worries the legal constraints make it hard to split ECB monetary and supervision roles.

Mr. Barnier insists the deal must be done on the basis of "good solutions in the existing treaties". But he adds that a second step could involve changing primary laws of the EU to make the banking union stronger. "Maybe we can imagine that later on we can consolidate things, improve things," he said.

(Read More: Europe's Smaller Banks Are 'Real' Problem: EU's Barnier)

He is less sanguine about British demands for safeguards to stop the ECB dominating at the European Banking Authority, the agency where supervisors co-ordinate EU technical rules. Although some changes must be made, he is unconvinced by UK demands for there to be a minimum of non-banking union votes in any decision – a so-called "double majority".

"The important thing is we are not fragmented," he said. "The EBA is a body that works for the coherence of the single market . . . A double majority could indeed establish a fragmentation. We can work on better systems than double majority."

Banking union is the most high profile of almost a dozen financial initiatives Mr. Barnier is attempting to drive through. One of the most important – the law implementing the Basel III international capital rules – could be agreed within weeks. But the European parliament and member states still stand far apart on some issues, not least over curbs on banker pay.

EU lawmakers are still pushing for an outright ban on bonuses that exceed fixed salary, while member states are largely resisting a maximum ratio. Mr. Barnier wants a "maximum cap" that can be adjusted – within a range – by shareholders.

It is clear to him that a "ceiling" on variable pay is likely and necessary. "Banks need to pay attention. They are part of society, they are not outside of society," he said. "Bonuses and remuneration are absolutely incomprehensible for people."

Given the US decision to postpone Basel III implementation indefinitely, Mr. Barnier is facing renewed calls to delay the reforms from an industry raising the alarm over a lending crunch. But for the moment, Mr. Barnier is concentrating on seeking answers from Washington.

"What worries me in the announcement of the US on the delay is that there is no clarity on a new date," he said, adding that he wants them to clarify "what they intend to do next".