March 17, 2014 4:41 pm

France and Germany squabble over who pays for EU banking union

France and Germany are squabbling over who should foot the bill for Europe’s banking union, with Paris fearing its banks will pay the biggest share towards a €55bn rescue fund.

As the EU enters a potentially decisive week in talks on a central system for handling bank crises, France is fighting plans to make its sector of big universal banks the leading contributors to the common insurance plan.

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It is one of several highly political issues that remain unresolved with days left before a Wednesday deadline to agree legislation with the European parliament, so that it has time to pass before the European elections.

Although it is highly technical, the dispute over the bank levy cuts across some fraught EU issues: whether the rescue system is genuinely European or actually partly national; whose banking system is most risky; and therefore whose lenders should pay more for insurance. France, Spain and Portugal have all submitted papers on the topic.

One senior diplomat said the breakdown of contributions was an “eye opener”, given that Germany, the EU’s biggest economy, is leading resistance to increasing the heft of the rescue fund or accelerating its mutualisation.

“Everyone put up with [Germany’s] antics because they thought it was the German banks that pay by far the most, but that isn’t quite true. It is the French banks that will fund this party,” the official said.

Some MEPs think it right that complex, “too big to fail” banks pay more. Sven Giegold, a German Green in the parliament negotiating team, said he was “appalled” by member states’ attempting to rig the calculation, to “give a subsidy to risky banks”.

A French informal position paper, circulated on Friday, lays out rough estimates showing the variance in national contributions depending on the method used. One big factor is whether the funding target – expected to be around 1 per cent of covered deposits – is set at European level or national level.

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European banking union

The EU’s banking union plans seek to place eurozone banks under the overarching supervision of the ECB

Under a European target France’s highly concentrated banking sector, including BNP Paribas and Société Générale, is on the hook for 21 per cent of the fund, slightly more than Germany’s more deposit funded sector.

By contrast, if the target is set at national level, the contributions of German banks would rise to 35 per cent, while France’s remain at 21 per cent. Berlin fought hard to limit the contributions of its big savings bank sector to the central fund.

France argues that given the fund is established with national compartments that are gradually broken down over 10 years, the European target level should also be phased in. This would leave French banks paying 21 per cent, or around €11bn, while German lenders would pay 28 per cent, around €15bn.

“Using a reference to national target level during the transitional period is consistent with the existence of national compartments,” the French paper argues, pointing out that a failing bank’s access to rescue funds varies according to its home state.

French officials used the bank’s risk-weighted assets as an indicator of potential failure and resolution. Should other indicators such as leverage or levels of bail-in debt be used, French contributions could increase further.

In a separate informal position paper, Spain said a European target level is necessary to reduce fragmentation, treat banks fairly and ensure deposit-reliant lenders are not penalised.

Madrid is against seeing risk-weighted assets as an indicator of riskiness and instead supports using internal models and a measure of how much of a bank’s debt can be bailed in. That would significantly reduces the expected bill for Spanish banks.

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