EU Commission and ECB rebuff Germany on the Banking Union

Participation of Michel Barnier, Member of the EC in charge of Internal Market and Services at the public hearing on Financial Supervision in the EU. (EC Audiovisual Services, 24/05/2013).

Participation of Michel Barnier, Member of the European Commission in charge of Internal Market and Services at the public hearing on Financial Supervision in the EU. (EC Audiovisual Services, 24/05/2013).

Michel Barnier the European Commissioner responsible for the Internal Market and Services in a clear-cut way broke yesterday Commission’s silence and joined the European Central Bank’s approach, over the creation of an effective European Banking Union, able to guarantee that failing or about to fail banks will be duly resolved or managed by one central and powerful European Resolution Authority. This new institution will be doing the job itself in a uniform and transparent manner all over the Eurozone and for all bank sizes. In this context the national resolution authorities will play only an auxiliary role.

Speaking yesterday in the European Parliament’s Economic and Monetary Affairs Committee, Michel Barnier confirmed that the Commission will propose the creation of a single resolution authority to deal with all banks in trouble. In this way he gave a clear indication of the model the Commission envisages and he stressed that the authority, “will do more than just coordinate work between national authorities”. He then added, “We have seen the limits of coordination.”

Obviously the soundness of the Eurozone bank resolution mechanism is crucial for the credibility of the future European Baking Union. No banking system has any creditworthiness if it is not known ex ante who is overseeing the banks and what happens in case they go bust. Then the next question to be asked is who is going to pay for the resolution? The European Parliament set very vague rules on what money will be used and to what extend in this bail-in/bailout procedure. Of course shareholders and unsecured creditors go first. Only then the resolution authority will ‘use’ some part of the bank deposits above the €100,000 benchmark (secured deposits) and possibly as a last resort ask for taxpayer/government money or money from the ESM.

Commission and ECB

Last Friday, the Vice-President of the European Central Bank Vítor Constâncio had also broken ECB’s silence on this issue and answered all those questions. He said that the central bank is in favour of one single bank resolution authority for the entire Eurozone. This institution in order to perform its duty should be able even to borrow from the European Stability Mechanism. In this way the ESM will be acting as a common backstop. Thus the ECB supports the idea of creating a seamless financial market all over Eurozone, which will guarantee the same borrowing cost for the same business risk throughout the euro area. Undoubtedly the ECB is not overshooting its mandate by that as Berlin could have argued, because according to its statute its major task is to make sure that the monetary policy is applied evenly all over Eurozone.

The relevant passage of ECB’s Vice-President speech went like this: “But in our view, an approach based solely on coordination between national authorities without a Single Resolution Authority and without a common backstop would clearly not be sufficient. It would make the Banking Union significantly less attractive for non-euro area Member States and hence less effective for the EU as a whole”.

The issue of bank supervision has been clarified months ago with the ECB undertaking it, through the creation of a completely new and distinct section under its roof. Unfortunately the question of banks’ resolution in case of a failure remains in the air, because Germany wants it to be a loose mechanism, without mutualisation of risks. The ECB through Vítor Constâncio however rebuffed this ineffective approach and proposed a central resolution mechanism with solid financial base on the ESM.

Solid bank resolution

This antithesis about the structure of the resolution mechanism is very substantial. A central one for the entire Eurozone with a solid financial base in the ESM can guarantee uniform, effective and transparent action throughout the euro area. If the task is left to 17 national resolution authorities, without a common strong financial base, then the Eurozone’s financial system would continue to be fragmented as it is today. Such a prospect would perpetuate all today’s drawbacks of the South, establishing for good the country risk and depriving the borrowers there from being favoured by the low-cost money from ECB. Italian, Greek, Spanish, Portuguese and some more countries’ SMEs would continue to pay triple interest rate than their German counterparts for exactly the same business risks.

Yesterday the European Commission through Michel Barnier came in the fore and clarified once and for all that there must be one bank resolution authority for the entire Eurozone. In this way the ECB and the European Commission have isolated Germany. Barnier went even further and said that there is no need to modify the European Treaty for that, at least not now. At this point it must be reminded that Germany insists that there is such a need, obviously trying to delay the whole affair of the European Banking Union. Barnier added however that he acknowledges the German worries, but he stressed that a treaty change could be envisaged at a later date, to perfect a banking union that would be already up and running.

the sting Milestones

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

EU finally to extend sanctions on Russia despite arguments; Greece again in Europe’s spotlight

What is the Internet of Things?

Scale of displacement across Myanmar ‘very difficult to gauge’, says UN refugee agency

EU migrant crisis: Germany, France and UK to show the way. Will the rest of the EU follow?

Global Recovery: The EU disburses SDR 141 Million to the IMF’s Catastrophe Containment and Relief Trust

Joint  EU-US Statement on  the Global Methane Pledge 

“Joining forces to #BeatPollution”, a Sting Exclusive by the Head of UNEP in Brussels

This is what CEOs around the world see as the biggest risks to business

How scientists are turning living cells into the tiny factories of the future

COVID-19 is threatening the lives of migrant children held in US custody

The COVID-19 recovery can be the vaccine for climate change

At G20 Summit OECD’s Gurría says collective action vital to tackle global challenges

UN rights chief ‘appalled’ by US border detention conditions, says holding migrant children may violate international law

Why trade wars have no winners

GSMA Announces Final Event Lineup for Highly Anticipated 2019 “MWC Los Angeles, in Partnership with CTIA”

EU leading in global agri-food trade

Member States’ compliance with EU law in 2018: efforts are paying off, but improvements still needed

The widely advertised hazards of the EU not that ominous; the sting is financial woes

South Korea once recycled 2% of its food waste. Now it recycles 95%

MEPs adopt Technical Support Instrument to speed up post-COVID-19 recovery

MEPs demand end to EU arms exports to Saudi Arabia

The ECB ‘accidentally’ followed IMF‘s policy advice for growth and job creation by printing more money

Brexit: European Commission publishes Communication on preparing for the UK’s withdrawal from the EU

The gender gap of medicine in 2018

Why our future relies on more inclusive and transparent innovation

What’s behind South Korea’s elderly crime wave?

European Commissioner for Youth wants young people to be at heart of policy making

EU: All economic indicators in free fall

Stop wars disguised as peace missions

Young translators at EU schools – Commission opens registration for 2020 translation contest

Social, cultural diversity ‘an enormous richness, not a threat’ Guterres declares calling on investment for a harmonious future

ECB money bonanza not enough to revive euro area, Germany longs to rule with stagnation

Five avoidable deaths per minute shows urgent need for action on patient safety

Towards a seamless internal EU market for industrial goods

Digital Green Certificate is the right move but speeding up vaccination is key

Myanmar doing too little to ensure displaced Rohingya return: UN refugee agency chief

Brexit: UK business fear of a no-deal scenario preparing for the worst

How man and machine can work together in the age of AI

MWC 2016 LIVE: Orange targets VoLTE and Voice over Wi-Fi; strikes Google partnership

75 years after Auschwitz liberation, antisemitism still threatens ‘foundations of democratic societies’

UNESCO food and culture forum dishes up fresh serving of SDGs

European markets itchy with short-term disturbances

Bioethics: how to recover trust in the doctor-patient relationship

This Kenyan company makes fuel from human poo

“Healthcare system and socioeconomic inequities”-through the lens of developing nations

China repels EU allegations of export subsidies

Germany’s fiscal and financial self-destructive policies

Cameron readies to support ‘yes’ for Britain in the EU

How Bangladesh’s leaders should respond to the economic threats of COVID-19

Civil protection: Parliament strengthens EU disaster response capability

Where are fleeing Afghans finding refuge?

Why the 33,000 staff European Commission did not have a real contingency plan for the refugee crisis?

MEPs approve the EU’s new culture programme

Human Rights breaches in Russia, Afghanistan and Burkina Faso

From raised fists at the 1968 Olympics to taking the knee: A history of racial justice protests in sport

Trump’s Russian affair spills over and upsets Europe

Why is Merkel’s Germany so liberal with the refugees? Did the last elections change that?

MEPs vote for upgrade to rail passenger rights

Mobile technology saving lives: changing healthcare with simple technology solutions

European Defence Fund on track with €525 million for Eurodrone and other joint research and industrial projects

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: