Berlin blocks EU deposit insurance

Even his latest compromise proposal was of no use: Irish Finance Minister Paschal Donohoe heads the Euro Group, the body of his counterparts from the 19 countries with the common currency. And the Christian Democrat has been trying for months to reach an agreement on how to proceed with the banking union project, which is as ambitious as it is delicate. Its goal is to create a barrier-free market for banking transactions. Ministers meet again this Thursday in Luxembourg, but unlike Donohoe hoped, they will not adopt an ambitious work plan.

That is also up to Germany. Because Donohoe’s compromise drafts for a European deposit guarantee for savings – a pillar of the banking union – are still too far-reaching for the federal government. Federal Finance Minister Christian Lindner (FDP) cannot agree with them, they say. At the same time, there are other parts of Donohoe’s banking union concept that are unacceptable to the Italian government.

As a first step, Donohoe wanted to establish an EU deposit guarantee as a reinsurance for national systems. If banks fail, savers receive their money from the national protection fund. He, in turn, could receive help from the new EU system, but only in the form of repayable loans. Only in a second step is this EU pot to be further developed into a real deposit guarantee at European level, which communitizes the risks for savers from the individual countries. But that should only happen if certain conditions are met and the EU governments agree.

In Germany, the savings banks and cooperative banks in particular are opposed to such an EU deposit guarantee. These banking groups have their own protection systems and fear disadvantages if national funds are merged at EU level. In his most recent compromise proposal, which the Süddeutsche Zeitung Donohoe praises how well these special national systems mitigate risk, but he wants to continue to include them in the EU system.

The euro finance ministers will probably adopt a slimmed-down statement

The coalition agreement of the traffic light alliance in Berlin provides for participation in a reinsurance system at EU level under certain circumstances. But this should not threaten the systems of savings banks and cooperative banks, it says there. In addition, “a full communitarization of the deposit guarantee systems in Europe” is ruled out. Therefore, the federal government apparently does not want to support Donohoe’s proposals – after all, phase two would cross this red line.

Instead of an ambitious work plan, the euro finance ministers will probably only adopt a slimmed-down declaration on Thursday. The CSU MEP Markus Ferber, the economic policy spokesman for the Christian Democratic EPP group, is not sad about Donohoe’s failure to secure deposits: His Irish party friend “still hasn’t said goodbye to the wrong path of a liability community,” complains Ferber. “If such proposals were to prevail, German small savers would be liable for the escapades of ailing banks in southern Europe in an emergency.”

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