EU Banking Union in the Balance?

If it were needed, proof positive once again that politics and economics don’t always mix is this link to an article published today in the FT.  It discusses the split developing within the EU between Brussels, Paris and the European Central Bank (ECB) on one hand, and Germany on the other.  The subject of the split is the future direction of EU banking union, specifically the design of the Single Resolution Authority, which together with the Single Supervisory Mechanism and the Common Deposit Guarantee Scheme, represents the three pillars of EU banking union.

The article describes the “German vision” for banking union – one of gradual integration where Member States remain largely responsible for supervision (albeit with coordination between national authorities) and wholly liable for costs (so as to protect the German taxpayer).  This contrasts with the EU vision for banking union which demands the creation of a centralised “heavyweight bank executioner” and implies a surrender of sovereignty with which Germany is uncomfortable.

If one considers that a single EU authority is a necessary step in relation to the supervision of credit institutions from birth and throughout life, it seems logical to conclude that a single authority should also govern them in their death.  Despite this, apparently logic has no place in this discussion and no compromise is in sight.  Add to this the fact that reformers are up against the deadlines of looming elections in Germany and at an EU level as well as a change of commission and EU banking union seems to be as far away as ever.

Barnier Tries to Force the Pace of EU Banking Reform

On 11 April 2013, Michel Barnier, European Commissioner for Internal Market and Services, gave a speech on the EU’s long-term financing needs, during which he touched upon the current status of the Recovery and Resolution Directive (RRD) and EU banking reform.

M Barnier remains open to the introduction of the EU bail-in regime before 2018, its original start date.  More to the point, he believes that the adoption of the main body of the RRD is “truly urgent” and should take place “within the next few weeks”.   However, given that the EU Parliament is not scheduled to consider the RRD until its plenary session of 9 to 12 September 2013, this seems unlikely.

On the subject of the Single Resolution Mechanism (SRM) – comprising a single resolution authority and a common resolution fund – M Barnier confirmed that the EU Commission would present a legislative proposal in the summer of 2013 (probably in June).  He also believes that the SRM can be established within the framework of current EU treaties.  However, if this FT article is to be believed, Germany may insist that revision to EU treaties is necessary, a position which the UK will use in order to secure the repatriation of powers from the EU to the UK.  If that proves to the case, EU banking reform risks being swallowed up in a political bun fight and we are unlikely to see its introduction any time soon.