Long live Eurozone’s bank supervisor down with the EU budget supremo

Joint press conference by Olli Rehn, Mario Draghi and Margrethe Vestager on the meeting of the G20 Ministers for Finance

EU leaders in their last summit of mid-October appeared ready to make another systemic blunder. After creating a limping Eurozone, with a common currency but not common rules for sovereign debt issues, now they discuss the institutionalisation of a common EU budget and a Brussels “supremo of Finance”.

And all that with no political legitimacy. In this way they are about to create a new false European Empire, where the politician who will control public spending in the 17 “provinces” (the Eurozone member states), will refer not to the people, for whom he or she will preside over their fiscal realities.

Such an arrangement will not only put the “cart before the horse”, but it will defy the basic rule of democracy, which demands that the politician(s) (governments) who control public spending and promulgates taxes must be directly elected by the people, work for the people and be accountable to the people. This is the linchpin of our contemporary European democratic institutions, being founded in the city of Athens two and a half millennia ago.

We Europeans, we abolished the absolute authority of our kings and emperors, exactly because we wonted the executive authority to be accountable to the people over the way taxes are levied and then spent. Today the vote of the yearly state budget in all EU member states parliaments, constitutes  the basic democratic process and makes the elected governments and politicians accountable to people.

The new “EU budget supremo”, being probably the Commissioner responsible for finance, as Ollie Rehn is nowadays will be accountable to a kind of qualified majority in the EU leaders council, but not directly to people on behalf of whom he or she will be making crucial decisions. This lack of democratic legitimacy of an EU budget “minister” will soon lead to a series of problems and contradictions and will undermine the entire service. People and political parties all over the Union will at some point question this central budgetary authority and set ablaze the entire EU edifice.

Unlike this questionable idea of a central EU budgetary authority, the creation of a central bank supervision mechanism in Eurozone, under the European Central Bank, is a badly needed EU institution for years now. If it existed it could have prevented not only the undercapitalisation of Eurozone’s banks but probably could have also arrested the over-borrowing of governments. As it is well known national governments have been borrowing mainly from their country’s major banks, as it is the case in Greece, Portugal and Italy.

In such a context a central banking supervision scheme could have also prevented the big banks from over-exposing themselves to certain sectors of the country’s economy, as it is the case in the Spainish construction sector. As for the legitimisation of the authority of ECB in controlling a central banking supervision scheme, there can be no objection, given that the central bank is the issuer of the currency and the guarantor of sane monetary policies. Who else can be more competent, in securing the bank supervision service than the ECB?

On top of that the central bank can guarantee that there would be no dark pages hidden in the balance sheets of the major national banks, nor cover up of practices related to grey areas of unspoken national interests. There is no question that the Eurozone banking sector will be much more reliable and sane under the supervision of ECB than it is today under the control of national authorities. National controllers are usually looking the other way, when the country’s major banks are taking the wrong path. This was exactly the case when the Spanish banks in 2008 convinced their depositors, to invest their life savings in junk bonds and worthless preferred stocks of a total nominal value of at least €25 billion and zero value today. The bankers new they were actually “stealing” the money.

Luckily enough the EU leaders in their mid-October gathering set a solid foot-path for the creation of the Eurozone central bank supervision mechanism to be operational in some months, while leaving the idea of an EU budget “minister” to the distant future.