Sunday

11th Apr 2021

Draghi says EU bank union to break 'vicious' circle

Legislation for a eurozone banking union will restore economic confidence and break the link between banks and public debt, Mario Draghi, President of the Frankfurt-based European Central Bank (ECB), has told MEPs.

Speaking at his quarterly hearing with the parliament's economic and monetary affairs committee on Monday (17 December), Draghi said that "combined with possible direct recapitalisation of banks by the European Stability Mechanism (ESM) and an envisaged single resolution mechanism the SSM [Single Supervisory Mechanism] will go a long way towards breaking the vicious feedback loops between sovereigns and banks."

Read and decide

Join EUobserver today

Become an expert on Europe

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

... or subscribe as a group

The "ECB will have supervision over all banks ... with something of the order of 130-150 banks under direct supervision," he added.

Talks between ministers and MEPs on the first planks of banking union legislation will begin on Tuesday (18 December) in a bid to agree on the legal framework early in 2013.

According to a deal struck by finance ministers in Brussels last week, the SSM will give the ECB oversight on the eurozone banking sector from March 2014. Attention is then expected to shift in 2013 towards adopting legislation to harmonise national deposit guarantee schemes and to create a bank resolution mechanism.

Draghi's remarks came against the backdrop of fresh scepticism from Germany about the banking union plans.

A legal opinion by the Bundesbank warned that the deal agreed by ministers in Brussels last week lacked "a long-term solid legal basis."

Meanwhile, Bundesbank chief Jens Weidmann said that he was "not convinced that the ECB council is the optimal authority to decide when a bank has to be closed down or not."

Speaking at the hearing in Brussels, German Christian Democrat MEP, Werner Langen, said that ECB control over the entire eurozone banking sector is "hard to stomach" and would impinge on the role of domestic regulators.

The ECB chief also refuted claims that the bank's supervisory role would create a conflict of interest with its decisions on monetary policy.

"The ECB's involvement in financial supervision has no bearing whatsoever on our primary objective of price stability," he said, adding that a newly created supervisory board would have an independent chair and vice-chair.

"Banking supervision and monetary policy must be rigorously separated," he added.

Draghi painted a stark picture of the weakness of the eurozone economy, commenting that "we expect economic weakness to extend into next year with a very gradual recovery in the second half of the year."

He also called on governments to pursue structural reforms.

"Economic reforms bear fruit, even if, in the short term, the costs to individual citizens can be considerable. But the reforms are the rights path. Governments should persevere," he said, pointing to data indicating that exports of goods and services from Spain, Ireland, Italy and Portugal had recently increased by between 14 percent and 27 percent.

But for her part, Elisa Ferreira, the Socialist group spokesperson on the committee, said that the profits from the ECB's bond-buying programmes should be pumped back into the weaker EU countries.

She also urged the ECB to back "a softer implementation" of domestic austerity regimes.

Draghi seeks to allay German concerns on banking union

European Central Bank chief Mario Draghi sought to downplay a clash of views with the German government over the scope of a new banking supervisor by suggesting a bigger role for national supervisors when it comes to small regional banks.

EU summit lays out next steps for banking union

EU leaders have agreed to take further steps towards banking union including the legal minefield of how to wind up ailing banks and make sure the tax payer does not foot the bill.

News in Brief

  1. Turkey blames EU for sexist protocol fiasco
  2. France to close elite civil-service academy
  3. Covid-19 cases in UK drop 60%, study finds
  4. White House urges 'calm' after Northern Ireland riots
  5. Italy's Draghi calls Turkey's Erdoğan a 'dictator'
  6. Slovakia told to return Sputnik V amid quality row
  7. EU risks €87bn in stranded fossil fuel assets
  8. Obligatory vaccination not against human rights, European court says

Vietnam jails journalist critical of EU trade deal

A journalist who had demanded the EU postpone its trade deal with Vietnam until human rights improved has been sentenced to 15 years in jail. The EU Commission says it first needs to conduct a detailed analysis before responding.

Stakeholders' Highlights

  1. Nordic Council of MinistersDigitalisation can help us pick up the green pace
  2. Nordic Council of MinistersCOVID19 is a wake-up call in the fight against antibiotic resistance
  3. Nordic Council of MinistersThe Nordic Region can and should play a leading role in Europe’s digital development
  4. Nordic Council of MinistersNordic Council to host EU webinars on energy, digitalisation and antibiotic resistance
  5. UNESDAEU Code of Conduct can showcase PPPs delivering healthier more sustainable society
  6. Nordic Council of MinistersWomen benefit in the digitalised labour market

Latest News

  1. The Covid bell tolls for eastern Europe's populists
  2. Four deaths after taking Russian Sputnik V vaccine
  3. Post-Brexit riots flare up in Northern Ireland
  4. Advice on AstraZeneca varies across EU, amid blood clot fears
  5. Greenland election could see halt to rare-earth mining
  6. After 50 years, where do Roma rights stand now?
  7. Why Iran desperately wants a new nuclear deal
  8. Does new EU-ACP deal really 'decolonise' aid?

Join EUobserver

Support quality EU news

Join us