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EU Could Emulate U.S. Banks If Red Lines Are Moved, Germany Says

EU Could Emulate U.S. Banks If Red Lines Are Moved, Germany Says

(Bloomberg) -- European leaders could foster the kind of integrated banking market that benefits the U.S. 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 U.S. achieved,” Joerg Kukies, a deputy German Finance Minister, said at a conference in Frankfurt Thursday.

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 recognize the ultimate benefit of deeper integration and “all of the red lines, you could argue, could still be met.”

Positive Effect

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 U.S. 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 Corporation “learning from the U.S. 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.”

--With assistance from Alexander Weber.

To contact the reporter on this story: Nicholas Comfort in Frankfurt at ncomfort1@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Iain Rogers, Chris Reiter

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