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EU Parliament seeks to avoid rift

Wednesday, September 26 07:57:36

The European Parliament debates plans for a euro zone banking union on Wednesday, with members likely to raise concerns that the project designed to ease the currency bloc's crisis could sow divisions within the wider EU. Earlier this month, Brussels proposed that the European Central Bank should supervise all euro zone banks as a first step towards creating the union, under which the 17 member nations would form a united front to back their lenders.

However, the plan has aroused worries in the 10 other European Union states, with their own currencies, that they will be indirectly affected. They are free to join the scheme but many may not. Britain, home to Europe's biggest financial centre in London, will not participate but avoids openly criticising the project. Other governments have publicly expressed their reservations. "The European Commission banking union proposal has the problem that it makes it very difficult for countries outside the euro," said Sven Giegold, a German member of the parliament. "We have a big interest that countries outside have voting rights to stop a split between countries such as Poland and Germany," said Giegold, who will play a leading role in talks with European countries about the plan. "The same goes for Sweden." Legally the European Parliament will have no say in writing much of the legislation to underpin a banking union. But it has powers to amend other important financial regulations and is likely to exert its influence in changing the new regime. Wednesday's debate starts at 0700 GMT. Banking union, which aims to restore confidence in an industry that has been battered by crisis, has three major steps: the ECB takes over monitoring euro zone banks - and others that sign up - from national regulators; a fund is created to close down and settle the debts of failed banks; and a comprehensive scheme to protect savers' deposits is established. Giegold underscored a central problem of the union - that it will drive a wedge between those countries inside the scheme and those outside, whose banks may suffer as a result. ( C) Reuters