Bickering Continues over EU Bailouts, ECB Powers

The bickering over the structure that banks and sovereign bailouts should take continues among Europe’s leaders. As a meeting of the finance ministers of the region ended, two critical issues remain unresolved.

The first is whether the European Central Bank should be the regulator of the entire banking industry among all members. Germany opposes the idea. That is no surprise, since its banks have, in most cases, the strongest balance sheets among those in Europe. Spain, on the other hand, has practically begged for a central financial services authority. To avoid a massive a national bailout, it would need to get direct aid for its banks, which the ECB might be able to offer if it has the wide regulatory powers suggested.

Also, the core issue of how bailouts of sovereigns should work remains unresolved. Spain could be next in line for hundreds of billions of dollars. Germany has continued to press for relatively strict supervision of any new budget plans the Spanish government agrees to. Spain, on the other hand, wants to be essentially taken at its word that it can set austerity measures and effectively enforce them with outside observation, but nothing more.

Douglas A. McIntyre