EU: Centralised economic governance and bank supervision may lead to new crisis

In the first Economic and Financial Affairs Council (ECOFIN) of the year on January 22, the two first and more important items on the agenda were the “enhanced economic governance and policy coordination” (the “two-pack” economic governance) and secondly the “financial regulation and bank supervision”. On both accounts the Council made giant steps forward setting the path for their quick realisation. Not to forget that the full operational function of only those two new EU mechanisms, can transform the Eurozone and the European Union from associations of countries into a single economic and in many respects political union, introducing common decision-making procedures in the fiscal and credit fronts. Once the member states concede the approval of their government budgets to the European Commission and the oversight of their banking industry to the European Central Bank, their national sovereignty would be irrevocably restricted. The problem is that those two super-mechanisms, the European Commission and the European Central Bank, haven’t got full democratic accountability. Unfortunately very few people seem to be worried about that, not including two influential EU leaders as Manuel Barroso and Herman Van Rompuy, who have being absorbed by their bureaucratic role and have forgotten their political past. Once the willing member states accept that their national budgets will first be approved by the Commission and then be introduced in their Parliaments their national sovereignty in this crucial issue will be lost. The same is true for the supervision of the banking sector. After the national supervisory authorities are sidestepped and ECB undertakes the role of the pan-European banking supervisor, the link between national governments and the country’s banking industry will be cut off. In many respects, on both accounts (state budgets and banking industry) central controls may be proved proactive and contain possible mismanagement and short-sighted practices by national authorities. But in the long run the lack of direct democratic accountability in both those central entities (EU Commission and ECB) will create a new generation of problems related to the integrity, the transparency and the unbiased character of their everyday function. Judging from what we have seen so far there are great risks in all those fronts. For one thing the European Commission being a bureaucratic and not directly accountable body, with wide-ranging arbitrary powers tends to favour the strong and the flexible. Coming to the ECB, as of its nature it tends to be influenced by the “systemic” banking groups of the central countries. Unfortunately there is a basic lack of built-in openness and democratic control over both bodies, the Commission and the ECB. And this fact may lead to a new generation of institutional crisis in the future.