The new European Union of banks is ready

José Manuel Barroso, President of the EC, and Martin Schulz, President of the EP. (EC Audiovisual Service). The two men behind the new EU project for a banking union.

José Manuel Barroso, President of the EC, (on the right) and Martin Schulz, President of the EP. (EC Audiovisual Service). The two men behind the new EU project for a banking union.

Yesterday, José Manuel Durão Barroso, President of the European Commission, speaking in a farewell ceremony to honour the Cypriot Presidency of the European Union during the second half of 2012, made clear that the Commission has made the creation of the Single Supervisory Mechanism (SSM) for the EU banks as its utmost priority and will continue on the same policy line over the coming weeks or months. In any case for as long as it is needed to make the SSM operational.

The SSM

In his keynote speech on the above occasion Barroso said: “The centrepiece of the Cypriot Presidency was to make progress on the Commission’s proposals for a Single Supervisory Mechanism for the EU banks. And in this, we have achieved a significant breakthrough, both on the Council and on the Parliament side. Parliament has worked on this very efficiently and the Thyssen and Giegold reports are constructive and supportive, and in very many points rather similar to the approach taken by the Council. I hope making the final step for formal adoption is a matter of weeks, not months”.

There is no doubt that the Commission was the driving force behind the fast track promotion of the SSM during the Cypriot Presidency and the same is true for the “efficient” job done by the EU Parliament towards the same direction.

As everybody knows in Brussels the realisation of the SSM is a “sine qua non” operation, in order the big Eurozone banks to be able to get money and other financial support directly from the European Stability Mechanism. ESM has already being given huge financial fire power that may be exceeding even one trillion euro, if taken together with what will remain in the coffers of the European Financial Stability Facility (EFSF), after this last financial creature is absorbed by the ESM some-time this year. Of course all those mechanisms and accounts are operating under the close monitoring, direction and support of European Central Bank.

The banks take it all

At this point it must be reminded that the SSM was created on 12 December 2012 by the EU finance ministers. They agreed on the general approach on the legislative package that establishes this Single Supervisory Mechanism (SSM) for the oversight of credit institutions, which is a key element in the EU’s plan to establish a banking union.
The agreement was sealed by the last EU Summit of 2012 at the usual exemption of Britain. This time also Sweden and the Czech Republic opted out.

The legislative proposal on the SSM contains two regulations: one confers supervisory tasks on the European Central Bank (ECB), while the other modifies the existing regulation on the European Banking Authority. The SSM will be composed of the ECB and national supervisory authorities. The member states whose currency is not the euro will be able to participate in the mechanism through close cooperation arrangements.

The ECB will be responsible for the overall effective functioning of the Single Supervisory Mechanism. The ECB will assume its supervisory tasks within the SSM on 1 March 2014 or 12 months after the entry into force of the legislation, whichever is later and subject to operational arrangements.

The single supervisory mechanism is the first step towards an integrated “banking union”, which includes components such as a single rulebook, common deposit protection and a single bank resolution mechanism.

A brand new EU?

All that is tantamount of a brand new European Union, this time of Eurozone banks not Peoples, with an initial dowry of more than one trillion euro safely parked with the ESM/EFSF, for exclusive use by the big Eurozone financial firms. Those few banks will soon be eligible to receive the benevolent help of the ESM/EFSF-ECB directly, without any elected government or any other democratically functioning institution intermediating in the procedure.

The fact that the rest of EU lenders in Bulgaria, Romania, Hungary and elsewhere will be excluded from this new Union is secured by the fact that the SSM, “at the beginning”, will cover only the 200 systemic banks of Eurozone and no others. Then “we will see”, who will be eligible to participate from non Eurozone EU member states, under “close cooperation arrangements”.

What is the cost?

But let’s try to estimate the financial weight of this new European project. Obviously in our brave new world money is the common denominator of everything. So let’s estimate the value of this SSM-ESM/EFSF-Banking Union package under the direct management of ECB.

As estimated above the presently available financial firepower of the combined ESM/EFSF is probably more than one trillion euro. But this time all those obscure mechanisms, functioning away from any kind of democratic control and legitimacy may at times of crisis be beefed up by the ECB. The central bank can buy unlimited quantities of debt paper issued by the ESM, so this last one can transfer to banks equally unlimited quantities of capital, financed by freshly printed money.

At the same time the ECB may also take care of the liquidity needs of those banks, again with trillions of euro as it has done already, handing out to Eurozone banks more than one trillion euro in two instalments, called Long Term Refinancing Operations. Again with freshly printed money.

So the total value of this new European Union of banks is practically of unlimited financial potential, because it incorporates the European Central Bank and its right to print the only legal euro tender. Mind you all those prosedures will take place behind closed doors in the back rooms of SSM-ESM-ECB without the slightest democratic legitimacy.

The real economy

Where the real economy lies in this new brave European project of the banking clans? Obviously the people in the real economy will continue sweating for their incomes, while bankers will have unlimited access to financing, at zero cost of course. Obviously this is a preparation for the next credit crisis, with the banks reading themselves to receive again new capital and liquidity for free. Ordinary people will continue rowing in the galleon, if they find a place for that.

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