Parliament drops complaint against banking union treaty

Move means that eventual banking union deal is unlikely to face legal challenges.

The European Parliament has dropped its resistance to member state plans to base the single resolution fund on an intergovernmental treaty, despite legal experts questioning the treaty’s legality.  

Martin Schulz, president of the European Parliament, wrote to the European Commission on two occasions, insisting that the Commission uphold European Union law and resist member states’ attempts to circumvent it.  

But José Manuel Barroso, the president of European Commission, has refused. In a letter dated 11 March, Barroso stressed that the Commission’s priority was to finalise a deal on banking union ahead of Parliament elections in May and, in light of that, argued that an intergovernmental agreement could be broadly compatible with EU law.  

He appears to have won over the Parliament’s two largest parties, who last night (13 March) agreed to drop the matter.  

The leaders of the centre-right European People’s Party and the Socialists and Democrats group “refuse to defend the constitutional rights of the European parliament,” said Sven Giegold, a German Green MEP who is part of the Parliament’s negotiating team on the dossier.  

He said that Barroso had a “duty to act as guardian of the treaty”, while Schulz had a “responsibility to defend the democratic rights of the elected”.  

The EU’s planned banking union aims to place eurozone and some non-eurozone banks under a single regulatory regime. It is considered crucial in order to restore confidence in the eurozone’s banking sector and to reduce high financing costs for companies based in weaker eurozone economies.  

The decision largely removes a legal threat that would have hung over an eventual agreement on banking union, which MEPs have estimated needs to be achieved before 25 March if it is to be adopted ahead of Parliament elections in May.  

While the Commission and the Parliament would be able to challenge member states’ recourse to an intergovernmental treaty before the EU courts, the court is unlikely to accept challenges from individual MEPs, said an EU law expert.  

Yet concerns persist over the legality of an intergovernmental treaty and the precedent it sets. The EU’s legal services previously concluded that the treaty was unnecessary and that the fund could be based on EU law.   Christoph Herrmann, a professor in EU law at the Universität Passau, in a recent report commissioned by the Greens in the German parliament, said the German government is wrong to have forced an intergovernmental treaty on the other member states.  

Properly established and subject to judicial review, the single resolution would not be able to call on the member states’ budgets and would not violate their budget automony, he argued. German law does not therefore require the single bank resolution fund to be based on an intergovernmental treaty.  

Nor are member states allowed to act outside EU law where they can act within EU law, Herrmann continued. To do so breaches, in particular, their “duty of loyal co-operation” with other EU institutions.  

Indeed, many MEPs are concerned that using an intergovernmental treaty sets a bad precedent for the future, opening a door for member states to effectively legislate outside parliamentary scrutiny when it suits them.  

“I am concerned about the precedent it sets,” said Andrew Duff, a British liberal MEP. Although he accepts member states’ argument that the treaty is necessary, he expressed hope that it would be integrated over time in to the EU legal order.  

Negotiations between MEPs and member states on the proposal for a single resolution authority and fund, which have stalled for two months, made some progress on Wednesday (12 March) and will continue on Wednesday (19 March).   

MEPs are expected to continue their argument that the scope of the intergovernmental treaty should be limited. 

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