Banking

Italy Opposes German Proposal For EU Banking Union

EU money

A German proposal for the EU’s banking union is being opposed by Italy, which said it would impact banks’ ability to compete, according to a report by The Financial Times.

European banks are trying to work out the particulars of an ambitious integration project, but at a meeting of finance ministers in Brussels, Italian Minister of Economy and Finances Roberto Gualtieri said Italy disagrees with a significant facet of Germany’s proposal.

Germany wants to get rid of regulatory incentives for banking institutions to purchase debt from their governments, but Gualtieri said doing so would facilitate an “unlevel playing field” across the globe by putting European banks at a disadvantage. He said Rome’s position was “far” from the position of Berlin.

The banking union was devised as a way to pool resources, supervision and crisis management of European Union banks, and Germany’s finance minister, Olaf Scholz, is at the forefront pushing the project forward. 

The last piece of the puzzle has been the attempt to create a common EU system to insulate bank savers, but Scholz has made it conditional on some policy demands that have alarmed other countries for their toughness.

Germany, for its part, has opposed a deposit reinsurance mechanism for years.

“The deadlock has to end,” Scholz said. He suggested the EU could make a reinsurance system functioning as a backstop to national funds. That way, all governments could make sure that they would be able to honor their obligations to back up deposits of up to €100,000. 

Scholz is asking that banks would have to face capital requirements even when they purchase bonds put out by the Union’s own governments. The way it currently works in the EU is that sovereign debt is seen as a risk-free asset, which means that banks can buy it without having to increase loss-absorbing capital.

Germany’s position is that this gives banks the wrong incentive. Gualtieri disagrees. 

“We consider that this is a measure that would have a negative impact,” he said of the sovereign debt plan.

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