EU Summit consumed by the banks

German Chancellor, Angela Merkel and French President, Francois Hollande holding a vivid discussion under the watchful eyes of the Belgian Prime Minister, Elio di Rupo (centre). (The Council of the European Union photographic library, 14-3-2013).

The Spring European Council made yesterday a timid step towards the introduction of more social content in the austerity programmes currently applied in the EU and a giant leap forward in constituting the EU banking union. The relevance and the practical implications of the texts on each one of those two issues included in the final Conclusions of Summit are very characteristic.

Not much for growth

A lot of space and words were devoted to exorcise unemployment and lament the lack of growth, however without much practical content. Unfortunately the 27 leaders were even driven officially and officiously up to the point to accept that economic policies cannot fight recession effectively nor increase employment as Herman Van Rompuy concluded (“Growth and jobs are not things governments can buy or summon”). Nobody stood up to tell his peers that in the case of banks it was with government decrees and laws voted in Parliaments, that the lenders were given trillions of euros for free. In this case economic policies worked alright.

Even more depressing was to see the political leadership of the European Union to go painstakingly into details when it came to the banking union. They concluded that “Progress towards a more integrated financial framework is urgently needed… Concluding the legislative process on the Single Supervisory Mechanism (SSM) within the coming weeks is a priority”. Obviously when it comes to banks everything is urgently and concretely laid down. If it is unemployment and recession our political leaders tell us that there is no much to do to confront them.

In short our leaders made a lot of practical conclusions, took care of the details and set strict time limits for action to be taken to safeguard the banking sector. A huge paragraph was inserted in the Conclusion of the Summit in favour of the financial sector. The text is revealing, that’s why it is quoted here below.

A lot for the banks

“As agreed in December 2012, an operational framework, including the definition of legacy assets, should be agreed as soon as possible in the first semester of 2013, so that when an effective single supervisory mechanism is established, the European Stability Mechanism will, following a regular decision, have the possibility to recapitalise banks directly. Agreement must be reached on the Bank Recovery and Resolution Directive and Deposit Guarantee Scheme Directive before June 2013, ensuring a fair balance between home and host countries. The Commission intends to submit by summer 2013 a legislative proposal on a Single Resolution Mechanism for countries participating in the SSM, to be examined as a matter of priority with the intention of adopting it during the current parliamentary cycle. It should ensure an effective framework for resolving financial institutions while protecting taxpayers in the context of banking crises, be based on contributions from the financial sector itself and include appropriate and effective backstop arrangements, in line with its conclusions of December 2012. The integrity of the Single Market will be fully respected and a level playing field will be ensured between Member States which take part in the SSM and those which do not”.

Obviously all those details about the recapitalisation of banks and the creation of a safety net for lenders going bust, was of prime importance. That’s why the Council not only went in details and took concrete measures on those issues but also set timetables for the practical realisation of all those decisions in favour of banks.

The Bank Recovery and Resolution Directive and Deposit Guarantee Scheme Directive are two new safety nets for the banking sector. In reality the banks will continue spinning around other peoples’ money. When in the short run their risky bets turn profitable, shareholders and managers pocket the wins. If those placements become sour and the bank is about to go bankrupt, those two new Directives will take care of depositors money and the possibility for a velvet resolution of the bank, God forbid.

In practical terms taxpayers will guarantee the deposits which will continue to be under the complete discretion of the banks, to do whatever they like with them. That was the main message of the Spring Summit of our 27 leaders. As for growth and employment a lot was said but nothing concrete was announced. The only difference from the last Summit was that this time much more space was devoted to those burning and socially sensitive issues in the text of the final Conclusions.