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Leaders Say They Expect Agreement on Aid for Spanish Banks This Year

2012-10-19 12:49:24

By JAMES KANTER and STEPHEN CASTLE

BRUSSELS European Union leaders said early Friday that legislation enabling rescue aid to be channeled directly to Spanish banks should be agreed by the end of the year, but they left open critical decisions on how soon it could go into effect.

By leaving the start date vague, Germany could shape the legislation over the next three months to delay any use of a new bailout fund to directly recapitalize Spanish lenders until after national elections in September 2013.

The legislation focuses on improving supervision of banks in the euro area by putting them under the aegis of the European Central Bank, and it is one of the tools developed by Europeans aimed at salvaging the euro. The leaders agreed at their last summit in June that the direct recapitalization of banks could go forward once effective supervision by the European Central Bank is in place.

But such direct aid could be an election issue because German citizens have grown weary of paying most of the bill for bailouts, and they are wary of using more funds to help Spanish banks.

At a news conference Friday morning, Chancellor Angela Merkel of Germany would not give a precise start date for the system nor for the direct recapitalization of banks.

Mrs. Merkel said that Mario Draghi, the president of the central bank, had informed leaders that it will take some time until this banking supervision is up and running. Mr. Draghi didn t give us specific months, but it is not a matter of just one or two, it will take longer, she added.

The French government and the European Commission have sought to hasten that legislation in order to allow direct recapitalization of some of the euro zone s most vulnerable banks to start on Jan. 1, 2013.

But Fran ois Hollande, the French president, was also unable to give a date for the start of the system and instead said markets should be confident that direct recapitalization of banks would be able to go forward over the course of 2013.

Weeks or months will be needed for the mechanism to be implemented once the legislation was completed at the end of 2012, Mr. Hollande told a news conference.

The worst is over, he added, seeking to assure investors and citizens that Europe was keeping up momentum to emerge from its financial crisis.

Mrs. Merkel arrived at a two-day summit here insisting that putting some of the bloc s most vulnerable banks under the single supervisor by January was too ambitious.

After about five hours of talks, the leaders tweaked language in their final report making it clear that they did not expect the new system of bank supervision to be up and running by Jan. 1.

French leaders have also pressed for speedy adoption of European legislation to tighten budget discipline across the euro zone, as well as measures to pool at least some of the euro zone countries debt.

Germany, by contrast, has emphasized a more cautious approach and is seeking even greater powers of intervention to enable the most solvent countries to enforce budgetary discipline in the euro zone.

The differences between France and Germany matter. Agreement between governments in Paris and Berlin is seen as vital to any steps toward further integration in Europe and for ensuring the survival of the common currency for the 17 European Union countries using it.

The creation of a single banking regulator for the euro area was supposed to be a relatively straightforward matter after leaders agreed at a summit meeting in late June to put all lenders in the region under the aegis of the European Central Bank.

The idea was eagerly supported by Ireland and Spain, because it would be a precursor to letting weak banks in those countries tap Europe s new bailout fund directly, without loading more debt on those countries governments.

Since June, though, Germany has balked at proposals by the European Commission and France to put all 6,000 lenders in euro zone countries under the supervision of the regulator in a system that would be phased in starting Jan. 1.

The government in Berlin wants to ensure that the central bank has the capacity to do that job, while some German regional leaders are opposed to greater scrutiny of state and local banks by the central bank.

Last month finance ministers from Germany, Finland and the Netherlands set off new alarms with a joint statement proposing that any bank rescues from the bailout fund go only toward future problems.

Non-euro Eastern and Central European countries have their own concerns about a potential run on their banks, which would not be part of the new central system or backstopped by the European bailout fund.

And then there is Britain, which is a European Union member but has its own currency.

The British are seeking to secure a voting system that would ensure that decisions cannot be imposed on Britain s banks by the euro zone countries working together as a bloc.

Amid the stalled progress on the banking rules, warnings have been growing louder of a creeping lack of urgency to tackle the most pressing problems still hanging over the euro zone.

A pledge in September by the central bank to buy unlimited quantities of bonds has steadied borrowing costs in some of the most vulnerable euro zone countries like Spain. And while that decision has taken the edge off the crisis, it also could set the scene for a new outbreak of market jitters.

It is very important that the summit now maintains the momentum of reforming the economic and monetary union including the banking union, Olli Rehn, the European commissioner for economic and monetary affairs, said on Thursday. Now the political will of member states is tested.

In the case of Greece, little was forthcoming at the summit meeting beyond a statement that appeared intended to paper over the slow pace of negotiations with Athens on the release of more rescue money, and that seemed aimed at lending support for Prime Minister Antonis Samaras.

We welcome the determination of the Greek government to deliver on its commitments and we commend the remarkable efforts by the Greek people, the leaders said. Good progress has been made to bring the adjustment program back on track, they said.

A version of this article appeared in print on October 19, 2012, on page B3 of the New York edition with the headline: Leaders Say They Expect Agreement on Aid for Spanish Banks This Year.