BANKING UNION: THE DEBATE IN EUROPE

Banking Union divides Europe

During the technical preparatory work on the legal framework of the Euro area for the creation of a Banking Union, started since 2010, frequently unveiled divisions of members concerning this ambitious European project. The project includes the creation of Single Bank Resolution Fund (SRF) to € 55 billion, which will be used to refinance the European banks in crisis and the parallel creation of a single mechanism for the resolution of the crisis "controlled" by the European Central Bank (ECB). The difficulties of the European countries about Banking Union, concerning different issues including the single supervisory mechanism for European banks, the fund for banks in trouble and the fragmentation of decision-making processes in crisis management. In addition, the defence of national legal systems’ prerogatives and the issues of political mediation between national governments, have further slowed the process of the new banking union.

Causes of Disagreement

1) Resolution fund for banks. The Banking Union provides, through the Single Bank Resolution Fund (SRF), the creation of a fund to save the European banks. The realization of this fund, however, met opposition from some States, including Germany, opposed to the creation of a financial parachute with levies on national credit institutions. This issue, in fact, confirmed the division that exists between the countries such as Germany, Netherlands and Finland, which are not intended to provide government guarantees for banks and other countries such as Italy, near to the ideas of the ECB vertices, that a failure of fund may be a new crisis of confidence in the banking system. The greater distance between this views were for Germany and Italy. Their intentions were made known through two official letters sent to the President of ECOFIN, to the ECB  President and to the European Commissioner about the possible costs of banks in crisis on the State of European Union.

2) Banking Crisis: European or National control? The Banking Union involves the creation of a supervision system for European financial institutions monitored by the ECB in order to replace the current system monitored at the national level. Brussels, especially the European Commission, argues that the administration of the banks must be adequate to supervision of them. Therefore, if the ECB will monitor the leading European banks, including the failure or the rescue of them should be managed at the European level to harmonize national rules. On several occasions, Germany asked the creation of a decentralized system to administrate  bank default, in order to avoid the sharing of the resources used in the rescue. Despite the pressure from the ECB and the Commission to create a solid mechanism, Berlin is trying to keep the resolution powers in the national authorities and refuses banking risks of other countries. In the purpose of the European Commission, one of the core components of Banking Union consists in the supervision and crisis management mechanism. These functions would be carried out by the ECB through a new independent Council, the Single Resolution Board, which will have the task of checking the normal execution of rescue or failure operations for banks. In contrast, for Germany the establishment of the Single Board Resolution is a conflict of interest that involves risks to the activity of monetary policy of ECB. Furthermore, according to Germany the Treaties do not allow any form of resources sharing or the constitution of new eurozone economic institutions. Instead, according to the European legislator, the proposal for a single mechanism for crisis resolution respect the Treaties. The mechanism also gives new powers for ECB in order to allow better prevention and bank crisis management in the European Union.

3) Decision-making mechanisms: federal or confederal logic? The birth of the Banking Union and its decision-making mechanisms in the financial sector, emerges again old disagreements on institutional arrangements for EU. The two main elements of this Banking Union (Single Supervisory Mechanism-SSM and Single Resolution Mechanism -SRM) represent a compromise between federalist and confederations visions. Despite the important roles, assigned to the ECB and the Council (Single Board Resolution), the States continue to have strong discretion on the use of the common fund and strong instruments of pressure on decision-making processes of the Union Banking (formally attributed at European level).


Editor: Giovanni AVERSA