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14th Aug 2022

Non-euro countries raise concerns on banking union

  • Austrian bank in Romania: More trusted because of ECB supervision? (Photo: Valentina Pop)

Plans for stronger banking supervision in the eurozone are putting non-euro members in a difficult position: they want the euro-crisis to end, but they do not want to endorse a two-speed Europe.

EU ambassadors from Bulgaria, the Czech Republic, Denmark, Hungary, Latvia, Lithuania, Poland, Romania, Sweden and the UK met on Monday evening (10 September) in Brussels to share concerns regarding the European Commission's banking union plans to be unveiled on Wednesday.

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Giving the European Central Bank (ECB) the last say over which banks need to boost their capital or sell assets in order to avoid bankruptcy was Germany's condition for accepting the future permanent bailout fund (ESM) being tapped directly by ailing banks in the eurozone.

The 10 'euro-outs' each have a veto over the banking union plans, as they will require unanimity in the EU Council of ministers to pass.

No country really wants to use the nuclear option, as they do not want to jeopardise measures which could stabilise the eurozone, several diplomats told this website. But concerns remain and will have to be taken into account in the final version.

A level playing field between banks inside and outside the eurozone is the main sticking point.

For central and eastern European states - where 65 percent of the banking sector is in the hands of Austrian, German, French and Italian banks - the worry is the move will create unfair competition of big banks versus local ones.

"If the choice is between an Austrian and a Romanian bank, where would your grandmother put her money? Clearly having the might of the ESM and Germany behind it creates a competitive disadvantage for the local ones," one EU diplomat said.

Another issue is that non-euro countries can opt into the banking union, but would have no say in the governing council of the ECB which is made up of eurozone members only.

Decisions taken by the club to stabilise the euro - such as withdrawing capital from subsidiaries in eastern Europe to boost the coffers back home - could have a negative impact in the non-euro countries.

"At least we should have an observer role in the council, if we voluntarily agree to all limitations of the banking union," the diplomat said.

Question marks also arise as to where all this closer integration of the eurozone is leading to.

The debate about having a parliament - or a special committee within the European Parliament - just for the eurozone is being followed with deep concern among the 'outs,' as it would cement a two-speed Europe already taking shape.

For Britain, having a more powerful and united eurozone is also problematic when it comes to banking regulation or the balance of powers within the European Banking Authority, the London-based body pooling all 27 national banking supervisors.

Estonia - a eurozone member - is a special case, as its whole banking sector is in Swedish hands. But Sweden is outside the eurozone, so Estonia will be in the banking union, but its banks will remain under national supervision from Sweden.

"All of this shows how interlinked we all are. And how difficult it is to strike the right balance between giving up national control and liability and gaining something in return, especially when the non-euro countries have no backstop like the ESM," the diplomat noted.

Analysis

The battle for banking union

The EU commission will next week unveil keenly-awaited proposals on banking union. But Germany is trying to strip the law of its usefulness.

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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.

Discord simmers ahead of EU summit

It is being billed - by the Germans at least - as a "stepping stone" summit leading to firm decisions on further EU integration in December. But others want answers now.

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