News / Economy

European Banking Union? Don't Hold Your Breath

A statue depicting European unity is seen near EU flags outside the European Parliament in Brussels, Belgium,  Oct.12, 2012.
A statue depicting European unity is seen near EU flags outside the European Parliament in Brussels, Belgium, Oct.12, 2012.
In June last year, European Union leaders made a great fanfare of committing to 'banking union', a three-step plan to shore up the region's 8,000 banks and prevent a repeat of the debt and financial crisis.

Eleven months on, deep cracks have emerged in the visions member states have of the scheme, with Germany in particular raising doubts about its overall feasibility although both it and France have promised progress by the end of next month.

While the first step - to create a single bank supervisor under the European Central Bank - looks set to be in place by mid-2014, a second pillar, a 'resolution' agency and fund to close failed banks, is in doubt. And there is little prospect that a third leg, a single deposit guarantee scheme, will ever see the light of day.

In recent weeks, German Finance Minister Wolfgang Schaeuble has sent mixed signals, saying at a meeting in Dublin in April that banking union could not be done without a change to the EU treaty, then saying on Tuesday he was committed to pushing ahead with it as far as possible under the existing treaty.

The net result, officials and analysts say, is that the final structure of a banking union is likely to fall short of what EU leaders first envisaged, with potentially far-reaching implications for financial market stability.

In particular, market participants are worried that having supervision without a process for closing problem banks will leave banking union incomplete.

"The two, resolution and supervision, need to go together,'' said Simon Lewis, chief executive of the Association for Financial Markets in Europe, which lobbies on behalf of some of the globe's biggest investment banks.

"There is a lot riding on it in terms of a positive message for the stability of the system,'' he said.

Election looms

One major challenge for policymakers is understanding precisely what Germany, the EU's largest and most powerful country, wants or is willing to accept from banking union.

Berlin is concerned that a single agency for resolving bank problems across the eurozone could result in a financial burden that falls chiefly on its shoulders, with German taxpayers ultimately liable.

With elections approaching in September, no politician would want to explain why Germany might have to foot the bill for a failed bank in another country.

Schaeuble said in Dublin that to establish a system for sharing liability, the EU treaty would have to be amended since there is no provision under existing law.

Officials in Berlin have argued that without a treaty change the potential use of German taxpayer money for winding down a bank in another eurozone state could be thrown out by the country's top legal body, the constitutional court.

But changing the treaty is a monumental procedure that can take years, meaning  banking union would be greatly delayed, something that is a concern to France, Finland and many other EU countries, as well as to financial markets.

That may explain Schaeuble's verbal change of tack on Tuesday. After meeting French Finance Minister Pierre Moscovici in Berlin, Schaeuble said banking union was a "priority project'' and that he was committed to working towards it as soon as possible.

"We must make the best of it on the basis of the current treaties,'' he said, suggesting a "network of national authorities'' rather than a single resolution agency - something that would be little different to the patchwork of national supervisors that already failed in the crisis.

In other words, Germany's vision of banking union may well end at ECB supervision, with no shared resolution and certainly no single deposit guarantee scheme. That goes sharply against the view of France's Michel Barnier, the commissioner in charge of drafting the legislation that will underpin banking union.

"We need a [resolution] authority,'' Barnier said on Wednesday, referring to the original commitment of EU leaders. "We need an authority that will guarantee a rapid decision ... and hopefully a common fund one day.''

Without such an agency, Barnier and others in Brussels fear a return to a fragmented system of supervisors, fighting to protect their local interests when banks fold.

A lone voice?

While Schaeuble's views have complicated efforts to craft banking union in the way EU leaders intended, he is not the only voice. The European Central Bank is growing impatient, having repeatedly said that banking union is essential for stability.

Speaking to the European Parliament on Wednesday, ECB policymaker Joerg Asmussen raised the case of Cyprus, where a banking meltdown forced a bailout, as a lesson in why forging a banking union is critical.

"The Cypriot case has been a salutary reminder of the importance of establishing banking union as swiftly as possible,'' said Asmussen, who was formerly Schaeuble's deputy. "Only then, we will be able to break the negative interaction between sovereigns and their banking systems.''

As with many pronouncements from Schaeuble, the first question on policymakers' lips was whether he was speaking for himself or if his views were shared by Chancellor Angela Merkel.

Either way, this time there is electoral arithmetic in play. With Merkel bidding for a third term in office, her acolytes don't want to be seen to support a scheme that could expose German taxpayers to losses.

"The potential fiscal consequences is their main concern,'' said one senior EU official involved in negotiations.   

"Elections are coming up in Germany,'' he said. "For now, you just have to keep a cool head.''

Whether Berlin's stance on banking union softens thereafter remains one of the great imponderables in the eurozone's effort to draw a line under its crisis.

You May Like

Syrian Rebels Poised for Anti-Russia Collaboration

Forty-one insurgent groups issue joint statement vowing retaliation for Russian air offensives More

Political Maneuver Revives Export-Import Bank's Chances

Parliamentary tactic gets bill out of committee, but it faces opposition in the Senate More

Beijing Warns US on S. China Sea Patrols

Warning follows news reports Thursday that US military is planning to sail warships close to artificial islands Beijing has been aggressively building More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
House Republicans in Chaos as Speaker Favorite Withdrawsi
Jim Malone
October 09, 2015 12:32 AM
The Republican widely expected to become the next speaker of the House of Representatives shocked his colleagues Thursday by announcing he was withdrawing his candidacy. The decision by Majority Leader Kevin McCarthy means the race to succeed retiring Speaker John Boehner is now wide open. VOA National Correspondent Jim Malone reports.

Video House Republicans in Chaos as Speaker Favorite Withdraws

The Republican widely expected to become the next speaker of the House of Representatives shocked his colleagues Thursday by announcing he was withdrawing his candidacy. The decision by Majority Leader Kevin McCarthy means the race to succeed retiring Speaker John Boehner is now wide open. VOA National Correspondent Jim Malone reports.

Video German, US Officials Investigate Volkswagen

German officials have taken steps to restore some of the reputation their car industry has lost after a recent Volkswagen diesel emissions scandal. Authorities have searched Volkswagen headquarters and other locations in an effort to identify the culprits in the creation of software that helps cheat on emission tests. Meanwhile, a group of lawmakers in Washington held a hearing to get to the bottom of the cheating strategy that was first discovered in the United States. Zlatica Hoke reports.

Video Why Are Gun Laws So Hard for Congress to Tackle?

Since taking office, President Barack Obama has spoken out or issued statements about 15 mass shootings. The most recent shooting, in which 10 people were killed at a community college, sparked outrage over the nation's gun laws. But changing those laws isn't as easy as many think. VOA's Carolyn Presutti reports.

Video Hungary Criticized for Handling of Refugees

Amnesty International has accused Hungary of breaking multiple international and European human rights laws in its handling of the refugee crisis. As Henry Ridgwell reports, thousands of migrants and refugees continue to travel through the Balkans to Hungary every day.

Video Iraqi-Kurdish Teachers Vow to Continue Protest

Sixteen people were injured when police used tear gas and rubber bullets to disperse teachers and other public employees who took to the streets in Iraq’s Kurdish north, demanding their salaries from the Kurdish Regional Government (KRG). VOA’s Dilshad Anwar, in Sulaimaniya, caught up with protesting teachers who say they have not been paid for three months. Parke Brewer narrates his report.

Video Syrian Village Community Faces Double Displacement in Lebanon

Driven by war from their village in southwestern Syria, a group of families found shelter in Lebanon, resettling en masse in a half-built university to form one of the biggest settlements of its kind in Lebanon. Three years later, however, they now face being kicked out and dispersed in a country where finding shelter as a refugee can be especially tough. John Owens has more for VOA from the city of Saida, also known as Sidon.

Video Bat Colony: Unusual Tourist Attraction in Texas

The action hero Batman might be everyone’s favorite but real bats hardly get that kind of adoration. Put more than a million of these creatures of the night together and it only evokes images of horror. Sarah Zaman visited the largest urban bat colony in North America to see just how well bat and human get along with each other.

Video Device Shows Promise of Stopping Motion Sickness

It’s a sickening feeling — the dizziness, nausea and vomiting that comes with motion sickness. But a device now being developed could stop motion sickness by suppressing certain signals in the brain. VOA’s Deborah Block reports.

Video Making a Mint

While apples, corn, and cranberries top the list of fall produce in the US, it’s also the time to harvest gum, candy, and toothpaste—or at least the oil that makes them minty fresh. Erika Celeste reports from South Bend, Indiana on the mint harvest.

Video Activists Decry Lagos Slum Demolition

Acting on a court order, authorities in Nigeria demolished a slum last month in the commercial capital, Lagos. But human rights activists say the order was illegal, and the community was razed to make way for a government housing project. Chris Stein has more from Lagos.

Video TPP Agreed, But Faces Stiff Opposition

President Barack Obama promoted the Trans-Pacific Partnership on Tuesday, one day after 12 Pacific Rim nations reached the free trade deal in Atlanta. The controversial pact that would involve about 40 percent of global trade still needs approval by lawmakers in respective countries. Zlatica Hoke reports Obama is facing strong opposition to the deal, including from members of his own party.

Video Ukranian Artist Portrays Putin in an Unusual Way

As Russian President Vladimir Putin was addressing the United Nations in New York last month, he was also being featured in an art exhibition in Washington. It’s not a flattering exhibit. It’s done by a Ukrainian artist in a unique medium. And its creator says it’s not only a work of art - it’s a political statement. VOA’s Tetiana Kharchenko has more.

VOA Blogs

World Currencies


Rates may not be current.