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.
Reuters
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

Philippines, Muslim Rebels Try to Salvage Peace Pact

Peace process faces major setback after botched military operation to find terrorists results in bloody gunbattle between government forces, Moro Islamic Liberation Front fighters More

Republicans Expect Long, Expensive Presidential Battle

Political strategist says eventual winner will be one who can put together strongest coalition of various conservative groups that make up Republican Party More

Video New Wheelchair Is Easier to Use, Increases Mobility

Engineers have come up with a lever-operated design that makes use of easily accessible bicycle technology More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Liberia's Almost Last Ebola Patient Grateful but Still Grievingi
X
Benno Muchler
March 26, 2015 3:41 PM
Beatrice Yardolo was to make history as Liberia’s last Ebola patient. Liberians recently started counting down 42 days, the period that has to go by without a single new infection until the World Health Organization can declare a country Ebola-free. That countdown stopped on March 20 when there was another new case of Ebola, making Yardolo’s story a reminder that Ebola is far from over. Benno Muchler reports from Monrovia.
Video

Video Liberia's Almost Last Ebola Patient Grateful but Still Grieving

Beatrice Yardolo was to make history as Liberia’s last Ebola patient. Liberians recently started counting down 42 days, the period that has to go by without a single new infection until the World Health Organization can declare a country Ebola-free. That countdown stopped on March 20 when there was another new case of Ebola, making Yardolo’s story a reminder that Ebola is far from over. Benno Muchler reports from Monrovia.
Video

Video Cambodian Land Grabs Threaten Traditional Communities

Indigenous communities in Cambodia's Ratanakiri province say the government’s economic land concession policy is taking away their land and traditional way of life, making many fear that their identity will soon be lost. Local authorities, though, have denied this is the case. VOA's Say Mony went to investigate and filed this report, narrated by Colin Lovett.
Video

Video US, South Korea Conduct Joint Military Exercises

The Eighth U.S. Army Division and the Eighth Republic of Korea Mechanized Infantry Division put on a well orchestrated show of force for the media this week during their joint military training exercises in South Korea. VOA’s Seoul correspondent Brian Padden was there and reports the soldiers were well disciplined both in conducting a complex live fire exercise and in staying on message with the press.
Video

Video Space Program Status Disappoints 'Last Man on the Moon'

One of the films that drew big crowds last week at the annual South by Southwest festival in Austin, Texas, tells the story of the last human being to stand on the moon, U.S. astronaut Eugene Cernan. It has been 42 years since Cernan returned from the moon and he laments that no one else has gone there since. VOA’s Greg Flakus reports.
Video

Video Young Filmmakers Shine Spotlight on Giving Back

A group of student filmmakers from across the United States joined President Barack Obama at the White House this month for the second annual White House Student Film Festival. Fifteen short films were officially selected from more than 1,500 entries by students aged 6 through 18. The filmmakers and their families then joined the president and a group of celebrities for a screening of their films. VOA’s Julie Taboh reports.
Video

Video VOA Exclusive: Interview with Afghan President Ashraf Ghani

Afghan President Ashraf Ghani, during his first visit as president to Washington, gave a one-on-one interview with VOA Afghan Service reporter Said Suleiman Ashna, about his request for a change in U.S. troop levels, the threat from the Islamic State, and repairing relations with the United States and Pakistan. The interview was held at Blair House, late Sunday, in Pashto.
Video

Video California Science Center Tells Story of Dead Sea Scrolls

The ancient manuscripts were uncovered in the mid-20th century, and they are still yielding clues about life and religious beliefs in ancient Israel. As VOA's Mike O'Sullivan reports, an exhibit in Los Angeles shows how modern science is bringing the history of these ancient documents to life.
Video

Video Angelina Jolie Takes Another Bold Step

Hollywood actress and filmmaker Angelina Jolie has revealed she had her ovaries and fallopian tubes removed to lower her odds of getting cancer. Doctors say the huge publicity over her decision will help raise awareness about the importance of cancer screening. VOA’s George Putic has more

All About America

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More

World Currencies

EUR
USD
0.9211
JPY
USD
119.18
GBP
USD
0.6722
CAD
USD
1.2509
INR
USD
62.518

Rates may not be current.