19. April 2016

Opinion confirms inadequate legal basis for a European Deposit Insurance Scheme (EDIS)

Article 114 of the Treaty on the Functioning of the European Union (TFEU), cited by the European Commission as the basis for creating a European Deposit Insurance Scheme (EDIS), is not an adequate legal basis. This is the conclusion of a legal opinion obtained by the German Banking Industry Committee (GBIC) from Professor Matthias Herdegen and unveiled today in Brussels.

Article 114 of the TFEU may admittedly be invoked for measures aimed at harmonising member states’ legal and administrative provisions, but only if such harmonisation is designed to remove obstacles to market freedoms or to eliminate distortions of competition. The Commission’s proposal fails to satisfy these conditions in several respects, however. What it involves instead, in the eyes of the German banks, is a mutualisation of fund assets coupled with centralised collection and administration of funds by a European authority.

The opinion also finds that contributions paid by banks directly to EDIS would be covered by the exception for fiscal provisions under Article 114(2) of the TFEU. The legal basis cited by the European Commission does not therefore apply. On top of that, it only requires a qualified majority in the Council.

This means the opinion firmly disagrees with the approach of the European Commission and the Council’s Legal Service, which consider Article 114 of the TFEU a suitable basis on which to create EDIS and transfer fiscal competence to European level.

GBIC takes the view that transferring fiscal competence to an EU body which would collect financial contributions from banks on a substantial scale calls for an amendment to the TFEU. At the very least, however, the flexibility clause in Article 352 of the TFEU, which requires unanimity in the Council, would need to be cited as the legal basis.

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