European proposals to reshape the crisis-struck euro area ran into immediate criticism from Germany for putting too much emphasis on debt sharing and too little on controlling national budgets.
The 10-year road map, released today by four officials led by European Union President Herman Van Rompuy, centered on common banking supervision and deposit insurance and a "criteria-based and phased" move toward joint debt issuance. It also suggests that the EU could impose upper limits on annual budgets and debt levels of nations that use the euro.
"Parts of it read like a wish list," German Deputy Foreign Minister Michael Link told reporters in Luxembourg. The proposals lean "toward various models for mutualizing debt. What comes up short is improved controls," he said.
Germany's instant opposition lessened the chances that a June 28-29 summit -- the 19th since the debt crisis broke out in early 2010 -- will point the way out of the turmoil that threatens to splinter the euro currency.
Van Rompuy collaborated on the proposals with European Central Bank President Mario Draghi, European Commission President Jose Barroso and Luxembourg Prime Minister Jean-Claude Juncker, who manages meetings of euro finance ministers.
Banking supervision in the euro area could be entrusted to the ECB, under a provision in the EU's treaty that allows member nations to give the central bank more oversight of all financial institutions except insurance companies. The report envisions an EU-wide deposit-insurance program, to "strengthen credibility" of existing national backstops, as well as financial sector- funded scheme for winding down banks.
Broad deposit guarantees would require a "solid financial backstop," the report said. Within the euro area, the 500- billion-euro ($625 billion) European Stability Mechanism could stand behind deposit insurance guarantees and the resolution fund for shutting failing banks.
Bundesbank President Jens Weidmann said the discussion about introducing a banking union in the euro area can't take place without it being part of the debate on fiscal union. He said the currency bloc's politicians need more serious discussion of sharing sovereignty.
"It makes little sense to single out the banking sector when talking about mutualization of debt, without taking the rest into account," Weidmann, who also sits on the ECB's Governing Council, said in Hamburg yesterday. "It's important that a banking union doesn't lead to euro bonds by the back door."
David Fuller's view The previous summits achieved so little that public expectations for this one are minimal. Therefore should investors back the formbook and anticipate a disappointing conclusion on Friday, or should they take a contrarian view?
Your guess is as good as mine because we are talking about politics rather than economics. However, we do know that the pressure to agree on a plausible programme for saving the euro is increasing. George Soros' interview comment that we have 3 days to avoid "Fiasco" will resonate with many.
If European leaders' avowed support for the euro project is genuine, they should be able to agree on a credible plan for fiscal union. Now that really could surprise the markets.