Czech PM: EU banking union plan not acceptable in current shape

PRAGUE Wed Oct 17, 2012 7:24am EDT

PRAGUE (Reuters) - The Czech Republic would veto a European Union plan to set up a banking union unless changes are made to proposals now on the table, Prime Minister Petr Necas said ahead of an EU summit starting on Thursday.

The Czechs are not members of the euro zone and have been loath to expose their highly capitalized and healthy financial sector to risks that would stem from pooling risks with other EU member states.

EU leaders are expected to discuss proposals on the banking union at the summit, but a number of countries including other non-euro members United Kingdom and Sweden have raised objections to the plan that would give large regulatory powers to the European Central Bank.

Necas said the Czechs had problem with issues including a deposit insurance scheme that could make the Czechs pay for aid to failing banks abroad.

"If there is a vote on it (the banking union) in the shape as it was proposed, we would veto it," Necas told a news conference.

"We condition our potential consent with unification of supervision by the clarification of several problematic issues.

"We can hardly agree with compulsory lending by national deposit guarantee funds."

German Chancellor Angela Merkel and Swedish Prime Minister Fredrik Reinfeldt stressed on Tuesday that plans for a new pan-European banking watchdog should not be rushed through.

Under a European Commission proposal, ECB supervision of euro zone's banks is due to start being phased in January 2013 as an attempt to break the link between struggling banks and indebted governments.

Sweden has also objected against any chance its taxpayers or banks could be made to pay for losses made by other banks.

The Czech Republic, like Sweden, paid large sums to handle a banking crisis in its own financial sector in the 1990s without external aid. (Reporting by Jan Lopatka and Robert Mueller. Editing by Jeremy Gaunt.)

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