EU 'to respect national sovereignty on bail-outs'

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New European financial regulators would not be able to force national governments to use taxpayer money to rescue failing banks, the EU's internal markets commissioner has said.

Michel Barnier's comments, in a BBC interview, appear to represent a victory for the British government.

It has been resisting pressure from other EU governments, especially the French, for the new regulators to have sweeping powers to force bank bailouts.

Changes could be brought in by 2011.

Mr Barnier also said he personally supported a new global tax on financial transactions, a so-called Tobin tax.

He is therefore throwing his weight behind recent calls for such a tax by the German chancellor, Angela Merkel.

Image caption,
The commission's new regulator would have sole authority to rate agencies


Mr Barnier told BBC business editor Robert Peston that for the new EU-wide regulators to be established, there would have be concessions by individual national governments.

"The final agreement must be one between the member states on one hand and the European parliament on the other," Mr Barnier said.

Asked about whether a government could be compelled to bail-out a failing bank by the EU watchdog, Mr Barnier conceded there was "disagreement".

"Both sides will have to move but I know the red lines of the UK government, which is also shared by others on fiscal sovereignty, and I think those red lines will be respected in the final agreement," he said.

Ring-fence dilemma

Mr Barnier made it clear that his support for a transaction or Tobin tax was a personal stance and did not at this stage represent the collective view of the European Commission.

Separately, Mr Barnier has recently called for a different tax or levy on banks in Europe, with the proceeds going into special funds which would meet the future costs of winding up banks that ran into difficulties.

The British government supports the principle of a bank tax, but does not want the proceeds earmarked for bank rescues and simply wants the proceeds to be available for general government use.

Asked by our business editor what he thought of the initial contribution to EU discussions by the new UK coalition government, Mr Barnier said it had been "constructive" and had shown "support for an ambitious financial agenda".

Stimulate discussion

As part of sweeping plans to overhaul financial regulation in Europe, Mr Barnier wants a new European authority to police credit rating agencies.

Separately, the commission also last week published a proposal paper on changing the way in which financial institutions such as banks are governed.

Directors and major shareholders in banks have been criticised for allowing the banks' management to take on too much risk prior to the financial crisis.

The proposals include:

  • limiting banks' boards to three directors who meet minimum levels of expertise
  • giving directors and auditors greater legal liability for their banks' performance
  • creating risk committees tasked with setting policy on banks' risk appetite
  • restrictions on managers' stock options and golden parachutes
  • requiring big investors in banks to publish how they vote at AGMs

The corporate governance "green paper" is only intended to stimulate discussion, and the commission does not expect to propose any specific new legislation until 2011.