Saturday

23rd Jun 2018

Bundesbank wants treaty change for banking union

  • Germany's central bank is an influential member of the ECB (Photo: Bundesbank)

Germany's Bundesbank is concerned about the European Central Bank's mix of powers once it takes over supervision of banks next year, insisting on an EU treaty change as soon as possible.

In its July report published Monday (22 July), the Bundesbank welcomed the creation of the so-called banking union, pooling at eurozone-level the supervision of large banks and, at a later stage, the power to tell banks to close down when they run into trouble.

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"The banking union cannot solve the current crisis, but can bring a valuable contribution to making future crises less probable," the Frankfurt-based bank said in its report.

The Bundesbank is sceptical about the legal anchoring of the Single Supervisory Mechanism (SSM), questioning whether the European Central Bank can have the ultimate say in bank supervision, while preserving its monetary policy independence.

The setting-up of supervisory boards as well as assurances by ECB chief Mario Draghi that the two activities will have a "Chinese wall" inbetween have failed to convince the Bundesbank.

"An effective separation of monetary policy tasks and supervisory tasks is not possible without changes to the institutional framework of the ECB, as enshrined in the EU treaties," the report reads.

A further concern is that non-eurozone banks are not included in the new supervisory system: "A truly European banking supervisor, that would cover the entire single market, should comprise of a binding, single banking supervisor for all EU members."

The Bundesbank urges politicians to "swiftly" proceed with EU treaty change that would put the banking union on a solid legal base.

But such a process usually lasts a few years and opens a whole set of different requests from member states and the European Parliament, which would also be involved in the process.

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The European Commission published the most important and eagerly awaited piece of the banking union puzzle on Wednesday but the backlash was predictable.

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After late-night talks, the Eurogroup agreed on a €15bn disbursement and debt relief measures for Greece, while setting out a tight monitoring when the bailout ends in August.

Greek bailout exit takes shape

At a meeting next week, eurozone finance ministers and the IMF are expected to agree on new cash, debt relief measures, and a monitoring mechanism to ensure that Greece can live without international aid for the first time since 2010.

Opinion

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The EU should not overuse the financial system in order to achieve environmental goals, or it risks the emergence of a green bond bubble which would be detrimental to the financial sector and hinder the achievement of climate targets.

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Eurozone needs institutional reform

Both the examples of Greece and Italy test the limits of a system with inherent weaknesses that feeds internal gaps, strengthens deficits and debts in the European South, and surpluses in the European North respectively.

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