Germany and France were divided over of the powers a new European banking supervisor should have to better deal with financial crises, leaving European Union finance ministers deadlocked with a year-end deadline closing in.
The 27 finance ministers are trying to agree on the setup of the new supervisory body, which will be headed by the European Central Bank and will hold wide-ranging authority over banks. Unable to bridge their differences on Tuesday, they will try again in a special meeting next week on the eve of a Dec 13-14 summit of EU leaders in Brussels.
As part of its plans to avoid a repeat of the financial crisis crippling the region, the EU has been working toward setting up a "banking union" — a unified playbook for all the region's banks. The single bank supervisor is a vital part of this plan and is needed to be up and running before other measures can be introduced: a European-wide depositors' insurance; a single method for winding down bankrupt banks; and allowing the European bailout fund to directly help banks in trouble, instead of lending money only to governments.
However, Germany and France, the continent's two largest economic powers, disagree over some of the supervisor's basic roles: how many banks the ECB should be allowed to oversee, when it should start, and what its final powers should be.
German Finance Minister Wolfgang Schaeuble said in public deliberations that "it would be very difficult to get approval by the German parliament if (the deal) would leave the supervision for all the German banks to European banking supervision."
"Nobody believes that it would work," Schaeuble said. Germany has hundreds of local banks which operate differently from large multinationals like Deutsche Bank. Schaeuble has been pushing for the new supervisor to oversee only the few dozen largest banks in Europe.
On top of that, he said the ECB had to remain at arm's length from any supervisory decision-making it takes on to protect its independence. The ECB sets monetary policy for the 17 EU countries that use the euro and is committed to remain independent of political pressure. Germany fear the ECB's independence may be lost if it has to negotiate the bailout of a bank in one of the member states.
"The last decision cannot be left to the governing Council of the ECB," Schaeuble said of bank bailouts.
In contrast, France's Finance Minister Pierre Moscovici came out strongly for an agreement "that covers all banks, and that is under the final control of the ECB."
He advocates supervision of all 6,000 institutions that have a banking license in the EU.
"In the end it must be the ECB that has the responsibility on the whole. Otherwise, there is no real system of banking supervision," he said.
In addition, some countries, including France, want a political framework for the supervisor decided on by the end of this year. Others, including Germany, argue that speed should not trump quality and thoroughness.
Belgian Finance Minister Steven Vanackere said it was important to get the supervisor in place soon.
"As with all musical masterpieces, the tempo of our decision is part of the quality," Vanackere said.