EU could emulate US banks if red lines are moved, says Germany

European leaders could foster the kind of integrated banking market that benefits the US economy if they’re ready to compromise, but don’t expect a deal just yet, according to a senior German official.
“If everyone moved their red lines, you could actually get to a much, much better equilibrium in the banking union, a much deeper integration and a much better place in terms of achieving what the US achieved,” Joerg Kukies, a deputy German Finance Minister, said at a conference in Frankfurt yesterday.
The European Commission and national officials are wrangling over thorny issues like whether to jointly guarantee bank deposits, make lenders hold reserves for potential losses on government bonds or allow free movement of capital between European Union states. Kukies, who co-chairs a group of officials working on such topics, said regular deadlock meant their meetings sometimes resembled “Groundhog Day.”
While he cited Germany’s “classic resistance” to joint deposit insurance, he didn’t identify which countries oppose the other measures. Italian banks’ significant holdings of their country’s debt suggest they would be hit hard by requiring them to set aside capital for sovereign bonds.
“The bad news is each and every member state has red lines in each of the single areas of negotiation,” Kukies said. Still, officials recognise the ultimate benefit of deeper integration and “all of the red lines, you could argue, could still be met.”
Germany would be open to compromise if progress is made on improving the health of European banks and is “very cognizant” of the need for “a careful and economically-sound calibration” of the regulatory treatment of sovereign debt, said Kukies.
A former co-head of Goldman Sachs Group Inc’s German unit, Kukies pointed to changes in US interstate banking rules in the late 1980s and early 1990s and their positive impact on growth. The deputy minister said he has “spent an inordinate amount of hours” at the Federal Deposit Insurance Corp “learning from the US example.”
In the EU, “I don’t really think we’re far enough yet to reach a ‘Big Bang’ kind of agreement on this in June,” said Kukies. “But I do think we will agree on the important issues and give a mandate or several mandates to the Commission to think about these things in much more concrete senses. In all of these issues, we can make progress.”