Thursday

28th Mar 2024

Analysis

The battle for banking union

  • AIB - the bailed-out Irish bank - under a European banking supervisor, would its problems have been spotted earlier? (Photo: Matt Buck)

In their last meeting before the summer break, EU leaders spoke about the need to break the "vicious link" between banks and sovereigns. The kind that allowed lenders to take unnecessary risks while local politicians conveniently looked the other way.

Now, just one week before a legislative proposal is to be tabled, the "vicious link" is in danger of being allowed to stay. And if it does, it will be down to significant lobbying by German Landesbanken and Sparkassen. In other words, the system will have lobbied to keep the system.

Read and decide

Join EUobserver today

Get the EU news that really matters

Instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

At stake is whether a single banking supervisor should oversee all 6,000 euro-area banks.

Berlin wants only big banks to be directly monitored. The rest, as finance minister Wolfgang Schaeuble recently wrote in the Financial Times, are to be treated differently.

The European Commission has said it will work out a compromise with Germany.

But in doing so it risks completely stripping the proposal of any of its usefulness.

It is not large banks, such as Deutsche Bank, where scrutiny is a problem, but much rather their smaller regional cousins.

Key issues that that will have to be dealt with in the banking proposal include how often banks are checked. Will it be on a weekly or monthly basis? Will the European Central Bank - the likely supervisor - give explicit orders or just make suggestions? Will Frankfurt will able to close down a bank? If so, in what circumstances and who will foot the bill?

At Germany's insistence, what is likely to emerge next week is a half-baked solution. There will be a European supervisor. But the national supervisors will ultimately hold sway.

This will essentially mean that no interfering and no much-needed light will be shined on Sparkassen or on any other small or medium bank in the eurozone. They will continue to operate under the scrutiny radar.

If this is the case, it will be go down as yet another of the eurozone's sticking plaster solutions.

More broadly, it will undermine Germany's case for closer political integration - ultimately involving treaty change - in the EU.

Berlin has been arguing to its somewhat mutinous euro partners that more scrutiny powers, particularly over national spending, need to be given to Brussels.

This, it says, would give confidence to the markets and prevent such a eurozone crisis from occurring again. Much the same case could be made for a European banking supervisor with bite.

Banking union to put 6,000 banks under ECB supervision

The European Central Bank will have the "ultimate decision-making authority" on supervising 6,000 euro-area banks, a commission spokesman has said. But Germany would like fewer banks included in the new system.

ECB to become bank union supremo

The ECB will supervise Europe’s biggest banks from mid-2013, according to controversial banking union proposals to be announced Wednesday.

'Swiftly dial back' interest rates, ECB told

Italian central banker Piero Cipollone in his first monetary policy speech since joining the ECB's board in November, said that the bank should be ready to "swiftly dial back our restrictive monetary policy stance."

Opinion

EU Modernisation Fund: an open door for fossil gas in Romania

Among the largest sources of financing for energy transition of central and eastern European countries, the €60bn Modernisation Fund remains far from the public eye. And perhaps that's one reason it is often used for financing fossil gas projects.

Latest News

  1. EU Modernisation Fund: an open door for fossil gas in Romania
  2. 'Swiftly dial back' interest rates, ECB told
  3. Moscow's terror attack, security and Gaza
  4. Why UK-EU defence and security deal may be difficult
  5. EU unveils plan to create a European cross-border degree
  6. How migrants risk becoming drug addicts along Balkan route
  7. 2024: A Space Odyssey — why the galaxy needs regulating
  8. Syrian mayor in Germany speaks out against AfD

Stakeholders' Highlights

  1. Nordic Council of MinistersJoin the Nordic Food Systems Takeover at COP28
  2. Nordic Council of MinistersHow women and men are affected differently by climate policy
  3. Nordic Council of MinistersArtist Jessie Kleemann at Nordic pavilion during UN climate summit COP28
  4. Nordic Council of MinistersCOP28: Gathering Nordic and global experts to put food and health on the agenda
  5. Friedrich Naumann FoundationPoems of Liberty – Call for Submission “Human Rights in Inhume War”: 250€ honorary fee for selected poems
  6. World BankWorld Bank report: How to create a future where the rewards of technology benefit all levels of society?

Join EUobserver

EU news that matters

Join us