Germany’s finance ministry sought to break the deadlock in discussions over European banking integration by signaling it may drop its opposition to a key part of the plan.
Berlin is ready to consider a form of joint European deposit insurance, something that would stabilise the financial system by reducing the risk of bank runs, according to a finance ministry paper.
That part of the plan has stalled, facing strong resistance from fiscally conservative countries and some parts of the German banking sector.
“We want a banking union that guarantees financial stability, protects the taxpayer and allows for the greatest possible degree of European market integration while also addressing the risks inherent in a more closely integrated banking union,” the finance ministry said in the document.
The main goal of a more closely-knit banking system in the euro area is to reduce the interdependence between lenders and their home countries.
Breaking down national barriers could also facilitate deals to bolster Deutsche Bank AG and Commerzbank AG, the floundering giants of German banking.
The proposal may increase the tensions in Germany’s coalition which has been destabilised by the slump in support for the Social Democrats.
Chancellor Angela Merkel is also facing dissent from conservatives within her Christian Democratic Union and that faction is likely to be riled up further by any suggestion the government might give ground over the banking union.
The CDU’s initial reaction to the proposal was cautious. “The proposal gets the debate moving again,” Olav Gutting, a CDU lawmaker on the Bundestag finance committee, said in an interview.
“We can’t allow ourselves to fall into a permanent blockade. But we’re standing by our line: Risks must first be reduced and controlled on a sustainable basis — and then you can have a European deposit insurance.”
Key steps in the banking union, which was launched in 2012, have already been taken: The European Central Bank was tasked with supervising the biggest lenders, and a new framework was created to deal with failing institutions.
Discussions over finalising the rest have been going on for several years, repeatedly held back by familiar divisions.
Fair, Balanced Compromise
“We welcome any opening and debate that could contribute to bringing the European deposit insurance scheme into life,” Valdis Dombrovskis, the EU commissioner in charge of financial-services policy, said in an emailed statement, adding that the provision is a key element to completing the banking union. “It is clear that all sides need to compromise, and only a fair and balanced compromise can be successful.”
A joint deposit insurance agreement has been the most difficult hurdle as wealthier countries balked at the idea of paying for failures in other states. Political talks among euro-area governments on the issue are due to take place over the coming weeks.