Euro zone single supervision launch may face three-month delay

BRUSSELS Tue Jun 18, 2013 1:03pm BST

Pedestrians walk towards the (L-R) Irish, Greek, Spanish and French national flags outside the European Parliament in Brussels May 3, 2013. REUTERS/Francois Lenoir

Pedestrians walk towards the (L-R) Irish, Greek, Spanish and French national flags outside the European Parliament in Brussels May 3, 2013.

Credit: Reuters/Francois Lenoir

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BRUSSELS (Reuters) - The launch of the euro zone single supervision mechanism, the first step towards banking union, might be delayed by three months from July to September 2014 due to scheduling problems.

Euro zone leaders agreed a year ago that the European Central Bank would take over the supervision of banks in the 17 countries sharing the euro to better deal with large, cross-border institutions whose failure could damage the euro zone.

The ECB has agreed to take up that role 12 months after the European Union passes the relevant laws as it needs time to set up the new institution and cannot start until it has a legal basis.

EU policy-makers first assumed that such legislation would be ready in March, but as negotiations dragged on, the deadline for laws was moved to July 2013 and the ECB starting date a year later.

Finalisation of the legal process, however, which culminates in a vote by the European Parliament in a plenary session, may now be delayed until September, one European Parliament official said.

This is because the German upper house of parliament, the Bundesrat, will review the legislation on July 5 after the Bundestag lower house agreed to it last week.

The Bundesrat, dominated by opposition Social Democrats and Greens, has previously criticised the European Commission's proposal on the single supervisor on the grounds that it could hurt the ECB's independence.

The European Parliament therefore has to be sure that German lawmakers will not ask for changes that would alter the existing compromise between euro zone governments and institutions, before it can vote itself in the plenary session.

But the Bundesrat review will take place one day after the July plenary session of the European Parliament ends, making the necessary vote impossible.

Because August is a monthly of holidays for EU institutions, the next opportunity to vote on the supervision mechanism (SSM) would be in September.

Adding to difficulties are negotiations between the ECB and the European Parliament on various details of the appointment and functioning of the SSM board and the parliament's role in that process. These need to be completed in the form of an agreement between the institutions before the vote takes place.

"The negotiations deal with an issue of primary political value. Transferring some supervisory powers to EU level implies making sure the new supervisor is properly held to account," the European Parliament official said. "The agreement being developed between the EP and ECB sets out to do this."

(Additional reporting by John O'Donnell; Reporting By Jan Strupczewski and Martin Santa; Editing by Hugh Lawson)

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