Open Europe Blog

As Bloomberg and the FT reported last week, the recently agreed plans for a Single Bank Resolution Mechanism (SRM) could face further problems and possibly even a legal challenge at the European Court of Justice (ECJ).

The European Parliament announced last week that it will today send a letter to Commission President Jose Manuel Barroso outlining significant concerns over the agreement reached between EU member states last month.

The concerns focuses on the agreement to use an intergovernmental treaty to set up the resolution fund – a move demanded by Germany to provide additional legal safeguards against the pooling of risk and resources. The Commission has also raised concerns. More widely it relates to the fact that both the EP and Commission are unhappy with the compromise struck, believing it does not go far enough and does not follow the ‘community method’.

According to numerous media reports and a statement by the EP, this dispute could delay the adoption of the SRM until after the European elections – a delay which could increase market uncertainty, especially around the bank stress tests.

The prospect of a legal challenge has also been raised. But, would the EP have a case? Unfortunately, at this stage we have more questions than answers for you, but below are a few points to consider:

  • Given that the main point of contention relates to the intergovernmental treaty, which is outside EU law, it’s not clear that the EP has a role to play or has any legal protection to fall back on.
  • That said, since much of the rest of the regulation is within the EU framework, the EP could potentially suggest its role as a ‘democratic check’ is being circumvented.
  • To be frank, it’s really not clear either way at this early stage. But this could prove to be a very interesting test case if it ever does come to pass. Throughout the crisis there has been a working assumption that the eurozone can build the necessary structures to help solve the crisis through a combination of EU laws and intergovernmental treaties. If this is thrown into doubt, the view of the future of the euro could begin to change.
  • It also has wider implications that affect the UK. The banking union deal illustrates the limits of the existing treaties and, as Chancellor George Osborne told our conference, that they are increasingly unfit for purpose in accommodating different degrees of integration. Intergovernmental treaties have been touted as the answer to any awkward UK treaty demands, but, if the scope for such treaties is limited, full blown treaty change of the sort David Cameron would like to use as a forum for reform might become unavoidable.

In any case, it will be an interesting dispute which could have some bearing on the future set up of the EU. One thing that is for sure though, is that it will lead to more delays and more questions being asked about the banking union deal.

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