The warning is delivered by the governing council of the European Central Bank in its latest progress report on efforts to transform the still largely fragmented national retail payment systems into a single euro payment area.

The objective of a Sepa is to enable European citizens to make payments throughout the whole area from a single bank account, using a single set of payment instruments, as easily and safely as in the national context today.

Under pressure from the European Commission, 42 commercial banks and credit sector associations formed a European Payments Council in June 2002, and set out plans for the development of a complete set of pan-European instruments, to be available by end-2007. Full migration for banks and commercial customers was pencilled in for 2010.

However, since early 2004, the commercial banking industry has begun to backtrack on the project, suggesting that the Sepa goal of a domestic payment area would have to be revisited in view of the transition costs. Some bankers wished to limit the project to cross-border payments in order to avoid having to change national payment systems into a pan-European system.

In the latest progress report, the ECB says: "While the Eurosystem is open to a discussion of implementation problems, it cannot compromise on the final objective. Payment systems have to conform to the European people’s desire for a single currency. If the EPC proves unable to deliver on the Sepa, alternative solutions will have to be explored."

This could include the introduction of punitive legislation aligned with a new legal framework for the payments industry.

The European Central Bank has urged the EPC to re-confirm its commitment to the Sepa project and outlined a set of project milestones, including the development of payment standards, instruments, and interoperability among national card schemes.

The eurosystem has also insisted that the project should be weighted in favour of decision-making by euro-area banks, to avoid interference and obfuscation by a coalition of non-euro area and laggard banks.

Looking ahead, the eurosystem urges national banking communities in the euro area to present convincing arrangements for implementing EPC-compliant payment standards at the domestic level (by 6 months after their adoption at EPC level at the latest); and to present the EPC with a national migration plan during 2005 for the gradual transition to a Sepa before end-2010.