Europe’s competition authorities risk throwing the continent’s economic integration into reverse with their response to the financial crisis, the head of Germany’s Bundesbank has warned in rare public criticism of Brussels.
In a Financial Times interview, Axel Weber said policymakers were “at a crossroads” and might harm Europe’s growth prospects if they insisted on making lenders withdraw from foreign markets and become more nationally focused.
The European Commission issued a hard-hitting response to Mr Weber’s comments on Wednesday, describing them as “misinformed”.
“It is not helpful for people to make misguided public comments concerning the Commission’s approach to state aid for banks without first discussing the matter with the Commission itself,” the Commission said in the statement.
Mr Weber’s warning comes as competition authorities decide what concessions banks will have to make in return for state aid.
Commerzbank, Germany’s second largest lender, which has been offered €18.2bn of state aid, is in talks with the European Commission over remedies, which may include disposals of businesses in other EU countries.
The comments by Mr Weber – one of the most powerful figures in European banking – reflect his fears that the crisis in financial markets will set back the economic integration deemed essential for the eurozone to thrive.
“Some of the demands coming out of the competition department of the Commission have been aimed at refocusing banks on their national credit and lending operations rather than fostering their pan-European endeavours,” Mr Weber said.
“I find it surprising – to say the least – that European institutions view crossborder operations within the EU as foreign operations. For me, the euro area is the domestic economy.”
Neelie Kroes, competition commissioner, has insisted that if banks get state aid they must restructure to compensate for the anti-competitive distortions created. Mr Weber said these “side effects” were “more pronounced than was originally envisaged” and might deter banks from using government help.
“If banks are forced to sell off profitable businesses …I think this creates a problem. Dealing with rescue operations in that way, the probability of a credit crunch in the euro area increases rather than decreases due to these restructuring conditions.”
Some national governments have also insisted banks become more domestically focused in return for state help. If banking did become more nationally focused “I think Europe would forgo a lot of its growth potential”, Mr Weber said.
The Commission defended state aid rules and said they had been “precisely adapted …to the current circumstances”. New guidelines on bank restructuring aid were likely to be published next month and would take account of current exceptional circumstances, it said.
But the Commission said “it is important banks restructure to avoid a repetition of the mistakes made so far”. Asked about Mr Weber’s comments on the impact of restructuring, the Commission said: “It all depends on how you require banks to downsize and which activities you make them get rid of.”
Mr Weber said UK suggestions for a European banking regulator were welcome and a “good vision to have”. But he said an “evolutionary approach” – increasing co-ordination among national supervisors over time – was more likely to succeed.
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