Institute for Research in Economic and Fiscal issues

IREF Europe - Institute for Research in Economic and Fiscal issues

Fiscal competition
and economic freedom


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European Banking (Dis)Union

Germany and Finance Minister Wolfgand Schäuble do not press for setting up a banking union and rejects a centralized authority whereas France and Finance Minister Pierre Moscovici are urging to set up the banking union through centralization. The latter position is also the Commission’s. The Eurozone financial convergence will prove to be complex: European negotiations are at a crossroad not knowing which paths to take yet.

The European Banking Union is supposed to be based on three pillars:

Common supervision : about 100 major banks as smaller ones should be supervised directly by the ECB. Common ground was reached on the pillar.

Bank resolution : a single authority would decide whether to close banks, use common funds and if creditors would bail in. Consensus is not reached and does not seem to be reached for long.

Deposit guarantees : a single guarantee scheme would insurance deposits below an amount of money to be decided. A common fund would back this. As can be guessed, there is no consensus on this point yet.

The Commission’s pillars as described above and backed by France are opposed by Germany. The three pillars rely on the notion of mutuality: a single centralized authority using a common “pot of money”. It is not surprising that this “collective effort” is supported by southern countries and France. “We want a full banking union and we want it fast”, claimed French Finance Minister Pierre Moscovici.

Yet, Germany is not in a hurry and would go another path: no centralization, but nations would be in charge and liable for the costs. Instead of a single authority for bank resolution, Germany envisions a network of national resolution authorities. There would be no common “pot of money” but national resolution funds. In any case, treaty changes would be necessary as the implementation of a fiscal union, two issues that should be addressed before setting up a banking union, according to Germany.

As a result, there is more financial divergence than convergence. Negotiations – open and secret – are still going on, in the shade of the opposition between France and Germany. The Commission should present its proposals by June but as a high-ranked ECB official said: “We have a problem and so far, no compromise is in sight.”

As for the IREF, we are extremely cautious about the idea of a European Banking Union since we think that banks should not be helped. We are then looking carefully to the next developments and the final proposal of the Commission.

Sylvain Charat

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