* Germany's Schaeuble says bank supervision cannot give ECB
* France's Moscovici protests against any watering down of
* Constancio counters suggestions that ECB may not be
By John O'Donnell and Robin Emmott
BRUSSELS, Dec 4 Germany and France clashed
publicly on Tuesday over plans to put the European Central Bank
in charge of supervising banks, deepening a dispute over the
scope of ECB powers that threatens to derail one of Europe's
With time running out to meet a pledge to complete the legal
framework for an EU-wide banking union by the end of the year,
Germany's Wolfgang Schaeuble told a meeting of finance ministers
he could not support a plan that would give the ECB's Governing
Council the final say on supervision.
France's Pierre Moscovici and the ECB protested against any
watering down of a plan central to Europe's response to a
five-year banking crisis and which promises to unify the way it
deals with problem banks, ending a previously haphazard
"The right of the last decision cannot be left to the ECB
Governing Council," Schaeuble said in comments broadcast to
reporters, going on to say that allowing it to happen could
obscure the ECB's primary monetary policy mandate.
There could be no deal unless national supervisors had
responsibility for most banks, he added, dampening expectations
of a quick agreement on what will be a cornerstone of the closer
integration needed to secure the euro's future.
"A Chinese wall between banking supervision and monetary
policy is an absolute necessity," he said, also voicing
scepticism that an independent central bank such as the ECB
could even take on the tasks of supervision.
Moscovici countered that EU leaders, who had given finance
ministers responsibility for drawing up a supervisory framework,
had placed the ECB at the centre of their vision.
"We have no mandate for a dual system of supervision, which
would call into question the existence of a single system for
some banks," said Moscovici, conceding after the meeting that
their differences were difficult to hide.
The depth of divisions between Europe's two biggest
economies and the leading engines for euro zone integration
makes a year-end deadline uncomfortably tight.
Ministers will resume discussions on Dec. 12, a day before
EU leaders meet for their final summit of the year. The news
briefly pushed the euro weaker against the dollar.
ECB Vice-President Vitor Constancio expressed alarm at
suggestions that the Frankfurt-based bank may not receive the
mandate to supervise banks at all, something hinted at by
Schaeuble but spelt out bluntly by Austria's finance minister.
Until Tuesday, it had been the working assumption by all EU
countries that the ECB would be put in charge of overseeing up
to 6,000 banks, starting with the biggest ones and gradually
phasing in full monitoring over the course of a year.
Austria's Maria Fekter said that EU leaders, in making their
pledge to establish a new system of supervision, "did not decide
the hegemony of the ECB, just involving the ECB" and accused
Constancio of misrepresenting their intentions.
The suggestion was rebutted by Constancio. "It is inside the
ECB, as the summit has decided," he said, although Schaeuble
also questioned that reading of the leaders' June decisions,
which called for the ECB to be given overriding oversight.
Small German banks want curbs on the ECB's scope and the
influential German Savings Banks Association welcomed in a
statement the fact that no "hasty" decisions had been taken.
EU leaders hope that by setting up a single, powerful
banking authority and later establishing a resolution fund for
distressed banks, they will cut the link between indebted
countries and their banking systems.
Most countries support the idea of supervision, the first
pillar of a banking union, but disagree on how best to structure
it, how far to go in unifying banking systems to share risks and
how to accommodate both euro and non-euro countries.
Complicating the debate further is Sweden, a non-euro zone
country that has substantial banking interests in Finland, which
uses the euro. Sweden is concerned that if the ECB is to have
oversight of assets it owns, it must have some level of equal
representation at the euro zone central bank.
Having earlier threatened to block agreement, Sweden's
Finance Minister Anders Borg appeared to soften his stance on
Tuesday, saying compromise was possible if non-euro countries
were treated fairly and national regulators retained autonomy.
Diplomats also need to address the concerns of non-euro zone
countries that aim to join the currency, such as Poland and
Hungary, which also want to ensure they are not disadvantaged by
the ECB taking a more powerful oversight of their banks.
Leaving the meeting, Poland's Finance Minister Jacek
Rostowski once again called for non-euro zone countries to get
equal rights if they join a banking union, cautioning that while
a deal was possible this year, there was no need to rush.
Germany is also concerned the project will develop into a
scheme under which Berlin is left to foot the bill for banks too
weak to survive on their own when, as is planned, a central
resolution scheme is set up to close troubled lenders.
It is wary about directly recapitalising banks from the euro
zone's rescue fund, which will be possible once banking
supervision is up and running.
Finally, an answer must be found to Britain's demands for a
change to voting rules for when regulators from across the
27-country European Union meet to flesh out law.
If ministers reach agreement on Wednesday next week, it
might allow them to finalise the framework by a summit of EU
leaders on Dec. 13-14, as long as the European Parliament also
plays its part and gives its approval.
"It's not impossible to reach a deal this year but it will
be more difficult," said Sven Giegold, a German member of the
parliament who will be involved in the negotiations.