The Banking Union may lead to a Germanic Europe

A careful reading of the text of conclusions of last European Summit, the 28 EU leaders undersigned yesterday night after two days of discussions in Brussels, proves that they don’t really care about the implementation of their own June 2013 decision to combat unemployment and social exclusion, as the European Sting reported last morning. However, when it came to the monetary union they agreed to introduce new severe economic policy determinants and obligations (contractual arrangements) to be applied by Eurozone countries, which may lead even to a Germanic Europe. This new ‘Eurozone contract’ is obviously inspired by Berlin and appears to be a precondition set by Germany for the enactment of a full European Banking Union. Let’s take one thing at a time. Last June, every young European under 25 without a job (there are 7.5 million of them) was promised by those politicians, “a job or training or an apprenticeship within four months from graduation”. In view of that the 28 leaders couldn’t avoid a relevant discussion yesterday. Reportedly, it took them only some minutes to pass it, while the Banking Union absorbed almost two hours of their time. The paragraph included in their ‘conclusions’ is very enlightening about the weight of this issue in the minds of our 28 heads of states and governments. It goes like that, “(the Council) took stock of the implementation of the initiatives taken in June in the fight against youth unemployment and the financing of the economy, in particular of small and medium-sized enterprises, and agreed on additional measures. It gave a new impetus to better regulation”. Lying about combating unemployment Only yesterday the European Economic and Social Committee denounced, that not one of those youngsters or SMEs have seen any such initiative taken by their governments. No member state has done anything despite its leader undertook a solemn obligation last June. Despite that the 28 “gave a new impetus” and proceeded to the next item on their agenda. Incidentally they remembered that digital economy, innovation and services can provide many jobs so they devoted a good part of their time to that. It seems that every time they meet, they choose a popular issue and advertise their endeavours to exploit its potential for growth. Finally the only potential they exploit is their exposure to media, as advocates of those popular themes. Last June was the fight against unemployment, this October is the development of the digital economy, innovation and services. A large part of the Summit’s conclusions is devoted to those three areas, which actually can and do offer many jobs. An interest for jobs Job creation; this is the only reason why the 28 leaders had a long discussion on those issues. Coming to think of that, the popularity of the words ‘job creation’ is the only connection between those three seemingly activities, which attracted the interest of the 28 politicians. So our leaders didn’t want to miss the opportunity of an 8 o’clock news exposure. However what they had to say about that was a mere tautology. The backing the Council had to offer to real people sweating in the real world was almost embarrassing, meaning ‘keep doing what you are doing and explore your potential, because nobody is going to help you’! An epitome of the Council discussion on that issue appears in the conclusions as it follows, “Today the European Council focused on the digital economy, innovation and services. These areas have a particular potential for growth and jobs which must be rapidly mobilized. The European Council provided concrete guidance so as to take full advantage of the existing potential”. Thank you and good night would have been an honest comment. Excited with banks Now let’s pass to what really excites our leaders, the banks. All of a sudden everything became much more solemn and demanding. It was the time that Germany intervened and set the terms of the discussion. Actually Berlin introduced a totally new concept in the European Institutions, the ‘contractual arrangement’. This needs a good analysis. Everything started two years ago with the ‘six pack’ and ‘two pack’ regulations, introducing stricter enforcement of economic governance mainly in Eurozone, with the controls and the recommendations provided by the ‘European semester’ procedure. The target is that at least the 18 Eurozone countries apply the austere Teutonic economic recipe, which has increased poverty in Germany proper, from 12% of the population in 2005 to 17% today. Those regulations give the Commission the power to issue recommendations to all EU country members, and place under surveillance the Eurozone member states. The problem is however that only a very small percentage of those recommendations are implemented and this makes Germany quite uneasy about the Banking Union. The truth is that there is an umbilical cord between banks and national governments, which facilitates the issue of sovereign debt, to finance fiscal deficits. This connection cannot be cut off just like that though. Eurozone’s financial system, in order to be weaned off from the exchequers gradually and without major frictions, needs time and money. In view of that Germany now goes the other way around. It demands that Eurozone governments undertake a new set of obligations called ‘the contractual arrangement’, guaranteeing that all the 18 countries implement the recommendations of the Commission to control debts and deficits. Berlin couldn’t accept without extra guarantees that the European Stability Mechanism would act as lender of last resort for governments and banks. Let alone sharing the cost of eventual bank resolutions and recapitalisations. Germany is the largest contributor to the ESM. More obligations The relevant part of the Summit’s conclusions goes like that, “The Commission will also provide a first overview of the implementation of country-specific recommendations that will be a basis for the further monitoring of their implementation. Work will be carried forward to strengthen economic policy coordination, with the objective of taking decisions in December on the main features of contractual arrangements and of associated solidarity mechanisms”. This last line interconnects the creation of the ‘solidarity mechanism’, aka the bank resolution mechanism and fund, with the ‘contractual arrangement’, meaning that the latter is a prerequisite of the former. This is obviously a condition for Germany to unblock the creation of the Banking Union. The relevant quote of the conclusions is the following, “Completing the Banking Union is urgent and requires not only a Single Supervisory Mechanism but also a Single Resolution Mechanism…The European Council underlines the need to align the Single Resolution Mechanism and the Bank Recovery and Resolution Directive as finally adopted. It also underlines the commitment to reach a general approach by the Council on the Commission’s proposal for a Single Resolution Mechanism by the end of the year in order to allow for its adoption before the end of the current legislative period”. This is the only way that the Commission proposals, for the creation of a strong and centrally operated Single Resolution Mechanism and Fund under its own roof, can be accepted by Germany. In short Berlin is unblocking the way for the creation of the European Banking Union, on the condition that all the Eurozone member states undertake more obligations in relation to their over-all economic policies. Controlling education However Germany demands also that those new contracts contain obligations reaching deep into economic structures, social issues and other policy areas like labour market and education. The target is Germanic uniformity in all Eurozone member states, what else?. The following passage of the text approves yesterday by the 28 leaders tells the whole story. “Alert Mechanism Report with the aim to agree, on the basis of the relevant indicators, on the main areas for coordination of economic policies and reforms…including the performance of labour and product markets, the efficiency of the public sector, as well as research and innovation, education and vocational training, employment and social inclusion in the Euro area”. It’s not quite clear if all those will be considered as conditions for Germany to accept the creation of the Single Resolution Mechanism and Fund. It’s very probable though that Berlin will demand that the most important of them, as the ceilings on fiscal deficits and debts should be included in the Eurozone member states constitutions. This could be the meaning of the following quotation, “To promote strong, sustainable and inclusive economic growth in the Euro area, the coordination of economic policies needs to be further strengthened, notably by increasing the level of commitment, ownership and implementation of economic policies and reforms in Euro area Member States, underpinned by strong democratic legitimacy and accountability at the level at which decisions are taken and implemented”. All in all, it becomes clear that the European Banking Union will lead bit by bit not to a European Germany, but to Germanic Europe.