Friday

24th Feb 2017

IMF: politics could wreck EU bank union plan

  • Greek demo. IMF: 'adjustment fatigue' poses risk for the EU's anti-crisis efforts (Photo: endiaferon)

The International Monetary Fund (IMF) has warned that political angst could harm EU plans to put the safety of its banks beyond doubt.

The Washington-based institute outlined the fears in its World Economic Outlook report out on Monday (8 October).

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

Its chief economist, Olivier Blanchard, wrote an upbeat preamble to the 229-page survey, saying "there has been a clear change in attitudes" in Europe and that "one can reasonably hope that the worst might be behind us."

But the study said that if EU anti-crisis measures, such as the banking union, are not put in place right away "the forces of financial fragmentation [will] increase and become entrenched, capital holes in banking systems [will] expand and the intra-euro-area capital account crisis [will] spill outward ... [with] deleterious consequences for the rest of the world."

Amid mass-scale anti-austerity protests in Greece, Portugal and Spain, it added that "rising social tensions and adjustment fatigue ... raise doubts about adjustment in the periphery."

Nodding toward euroscepticism in northern EU countries, it also said "the commitment of others to more integration" is open to question and that "policy makers need to build political support for the necessary pooling of sovereignty" that the anti-crisis plans entail.

The IMF's vision of an EU banking union tallies with recent European Commission proposals to create a single EU bank supervisor.

But it said the scheme must go further to stop European savers and investors from stashing their money in safe havens and to stop failing banks from dragging down their home countries.

"Banking union also requires a pan-European deposit insurance guarantee programme and a bank resolution mechanism with common backstops," the report noted.

It added that the two measures are "critical, and proposals for them still need to be spelled out."

Going back to his preamble, Blanchard noted that the move would amount to "a system of transfers" from rich eurozone countries to poor ones.

The IMF predicted that even if things go well, combined eurozone GDP will contract by 0.4 percent in 2012 before growing by 0.2 percent next year (a gloomier outlook than it had in July, when it forecast a 0.3 percent contraction and a 0.7 percent rebound).

But if EU reforms go badly, it said that even Germany will see its GDP shrink, while Italy and Spain will see up to 7 percent of their economies go up in smoke, instead of between 1.5 percent to 2.3 percent.

For his part, Benoit Coeure, a member of the European Central Bank (ECB) board, in a speech in Frankfurt the same day, backed the IMF bank union model.

"A common resolution fund would decrease the too-big-to-fail problem and thus reduce moral hazard ... Finally, depositors would not need to consider shifting their funds across the continent in search of a safe haven, as all banks would offer the same insurance coverage," the French economist said.

"To ensure that money is sound, and, in the euro area, that it is 'single,' we need the banking system to be equally sound, and importantly, single," he added.

"Banking union is ... [a] logical extension of the Maastricht Treaty [a foundational EU document], both in historical and political terms."

IMF tells eurozone to turn on printing presses

The euro crisis continues to weigh down the global economy, the International Monetary Fund said Monday, putting pressure on the European Central Bank to lower its interest rate even further and issue more cheap loans to the banks.

IMF tells Germany to do more for eurozone

Germany's economy is doing well in its recovery, but the country should be more "active" in helping the rest of the eurozone cope with the crisis, the International Monetary Fund has said.

Eurozone hawks deal blow to bank bailout plans

EU officials are in damage control mode after Germany, Finland and the Netherlands said the eurozone's new bailout fund should not take on old debt from bad banks.

Ministers at odds on banking supervision

Ministers remained at odds on how to include non-euro countries in a planned banking supervision scheme, threatening a 1 January deadline.

News in Brief

  1. Spanish court jails former IMF chief Rato
  2. Macron proposes Nordic-style economic model for France
  3. Germany posts record high budget surplus
  4. Labour ousts Ukip in Brexit homeland
  5. Dutch lower house approves EU-Ukraine treaty
  6. WTO says Russian pork ban was illegal
  7. Belgian nuclear plant made 'significant progress' on safety
  8. Report: Commission gauging EU support for Poland sanctions

Stakeholders' Highlights

  1. EURORDISJoin the Rare Disease Day and Help to Advocate for More Research on Rare Diseases
  2. European Healthy Lifestyle AllianceStudents Who Are Considered Fit Get Better Grades in School
  3. QS World MBA TourMeet with Leading International Business Schools in Paris on March 4th
  4. Malta EU 2017Economic Governance: Agreement Reached on Structural Reform Support Programme for Member States
  5. Socialists & DemocratsWomen Have to Work Ten Years Longer to Match Lifetime Earnings of Men
  6. Counter BalanceTrans-Adriatic Pipeline Is a Major Risk for Banks, Warns New Analysis
  7. Martens CentreEU and US Migration Policies Compared: Join the Debate on February 28th
  8. Swedish EnterprisesTechnology and Data Flows - Shaping the Society of Tomorrow
  9. UNICEFNearly 1.4 Million Children at Risk of Death as Famine Looms Across Africa and Yemen
  10. Malta EU 2017End of Roaming Fees: Council Reaches Agreement on Wholesale Caps
  11. Nordic Council of MinistersNordic Innovation House Opens in New York to Help Startups Access US Market
  12. Centre Maurits CoppietersMinorities and Migrations