Sceptical Czechs threaten to veto EU ‘banking union’

European leaders meeting in Brussels have agreed a timetable for the creation of a single banking supervisor for the eurozone. All 6,000 banks in the eurozone would be regulated by the European Central Bank; a mechanism that would essentially create a European banking union. But several countries are extremely sceptical, and they include the Czech Republic.

Herman Van Rompuy, photo: CTK

Herman Van Rompuy, President of the European Council, announced the results of the late-night talks at a press conference in Brussels. He told reporters if all goes to plan a new supervisory body for the eurozone’s banks would start working next year; allowing the European Central Bank to prevent what Mr Van Rompuy called banking risks and cross-border contagion – two things that have helped plunge the eurozone economy into crisis. Thursday night’s deal – which bore the hallmarks of a compromise between France and Germany – was, said Mr Van Rompuy, simply the first step.

“In June, we agreed to break the vicious circle between banks and sovereigns. The urgent element now is setting up a Single Supervisory Mechanism, to prevent banking risks and cross-border contagion from emerging. That's why the European Council called tonight for swift progress, with the objective of agreeing on the legislative framework by 1st of January 2013. Once this is agreed, the Single Supervisory Mechanism could probably be effectively operational in the course of 2013.”

Petr Nečas, photo: CTK

At least three countries, however, are sceptical; Britain, Sweden and the Czech Republic. The Czechs aren’t in the eurozone – in fact they’re nowhere near even setting a target date for adoption. Giving up the strong Czech crown to adopt the wobbly euro is politically toxic, at least for parties on the centre right. The Czech prime minister Petr Nečas repeated shortly after arriving in Brussels he would veto the idea of a banking union in its present form.

“We really could be in danger. No other country has a banking sector like ours. No other country has a healthy banking sector where the subsidiary banks are actually keeping their parent companies afloat. That’s the case with ČSOB and KBC, Česká spořitelna and Erste, and Komerční banka and Société Générale.”

The Czechs say a number of mooted proposals - including a deposit insurance scheme that could make the Czechs pay for aid to failing banks abroad – must be clarified before Prague could approve the scheme. It’s also unclear to what extent EU countries outside the eurozone – like the Czech Republic – would be involved.

Photo: European Commission

But commentators have questioned the power of any Czech veto. Mr Nečas could find himself in a similar situation to Britain’s David Cameron, who famously ‘vetoed’ last year’s deal on EU budgetary discipline only to see the remaining 26 EU members sign an intergovernmental accord instead.

Similar question marks hang over whether the Czech Republic’s banks could really remain out of reach of ECB supervision. Some 95% of Czech banks are foreign owned, and the parent banks could simply change the legal status of their Czech subsidiaries to allow them to be supervised from abroad.