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 Milestone

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

Next time you fly, could you be boarding a train instead of a plane?

False promises to Small and Medium Enterprises

The Czech economy is thriving but boosting skills and productivity and transitioning to a low-carbon productive model is vital to sustainable and inclusive growth

‘Save Tuvalu; save the world’; UN chief echoes rallying cry from front lines of global climate emergency

This South African lawyer is reading while running marathons – for book donations

‘Proving our worth through action’: 5 things Guterres wants the UN to focus on in 2019

Digital: The EU must set the standards for regulating online platforms, say MEPs

UN Security Council hails ‘courage’ of Afghan voters

Human rights breaches in Azerbaijan and Sudan

There’s a global learning crisis and it’s leaving millions without basic skills

In Christchurch, UN chief calls for tolerance, solidarity to extinguish ‘wildfire’ of hate speech

Building the future of EU strategic foresight – Speech by Vice-President Šefčovič at the annual conference of the European Policy and Strategy Analysis System

Commission launches initiative for more sustainable cocoa production

‘Global care crisis’ set to affect 2.3 billion people warns UN labour agency

1.1 billion people still lack electricity. This could be the solution

‘Think beyond farm jobs’ to reach sustainable development, UN agriculture chief advises African youth

Girls still being treated as aliens in medicine in the 21st century

5 things COVID-19 has taught us about inequality

COVID-19: Commission provides guidance on EU passenger rights

If you want to make progress on all the major global challenges, start with water

We should treat data as a natural resource. Here’s why

These are the top risks for doing business around the world

Germany may prove right rejecting Commission’s bank resolution scheme

How Asia could be the winner in the US and China’s Belt and Road race

7 steps to becoming a ‘CEO Academy’

State aid: Commission approves amended Estonian scheme worth €450 million to support production of electricity from renewable sources

5 facts to know about Africa’s powerhouse – Nigeria

Does May have enough time in Parliament to table a soft Brexit deal?

This man swam under the East Antarctic ice sheet to highlight the impact of climate change

A 3-step path to securing critical infrastructure

FROM THE FIELD: Conversations about Conservation

EU invests more than €100 million in new LIFE Programme projects to promote a green and climate-neutral Europe

‘Starvation’ now a reality for displaced Syrians stranded in camp near Jordanian border

TTIP is not dead as of yet, the 15th round of negotiations in New York shouts

The unique role of business in building social good

The European Union’s Balkan Double Standard

Sustainable finance: Commission welcomes deal on an EU-wide classification system for sustainable investments (Taxonomy)

We’re all in the same boat on the SDGs. Here’s how we steer a course

COP25: MEPs push for CO2 neutrality by 2050

Anti-Semitism ‘toxic to democracy’, UN expert warns, calling for better education

Universal access to energy is a major challenge for the Arab world. Here’s why

“BRI cooperation is entering a new stage: we need a new and more constructive approach rather than waste time on suspicion”, China’s Ambassador to EU Zhang Ming underlines live from European Business Summit 2019 in Brussels

Cameroon: Clear ‘window of opportunity’ to solve crises rooted in violence – Bachelet

Plenary highlights: Commission changes, EU budget and climate law

Why flexible workspaces are the key to winning the talent war

Syria: UN-backed watchdog says chemical weapon ‘likely used’ in February attack

The world needs a circular economy. Help us make it happen

Alcoholic drinks: Commission tables update of rules governing alcohol excise duties

‘Going green’ is good business says private sector at UN’s COP24 climate conference

The US may be “open” to reviving TTIP, while the EU designs the future of trade with China

State aid: Commission approves €1.2 billion French “Fonds de solidarité” scheme for small enterprises in temporary financial difficulties due to coronavirus outbreak

Coronavirus (COVID-19): truth and myth on personal risk perception

These are the ‘positive’ tipping points that could slow global warming

2019 Innovation Scoreboards: The innovation performance of the EU and its regions is increasing

Summer 2018 Interim Economic Forecast: Resilient Growth amid increased uncertainty

At the age of 50, is Davos going through a midlife crisis?

Deepfake democracy: Here’s how modern elections could be decided by fake news

What if we did everything right? This is what the world could look like in 2050

We’re facing a ‘cold crunch,’ and it’s nothing to do with the polar vortex

England’s beavers are back, and they’ve already made a big impact

More Stings?

Advertising

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