June 12, 2012
In an interview in today’s FT, Commission President Jose Manuel Barroso is raising the stakes in the talks on a ‘banking union’ in the EU and/or eurozone, involving an EU-wide deposit guarantee scheme, a rescue fund paid for by financial institutions and giving an EU-wide supervisors the power to order losses on banks, without the approval of national authorities. The Commission, keen to get back in the game following the shift in focus to national capitals in the wake of the crisis, says it’ll present a proposal for a banking union at the EU summit at the end of June.
According to the FT, Barroso said all of this could be achieved within the next year and didn’t necessarily require an EU Treaty change. He said, “there is now a much clearer awareness” in national capitals, including Berlin and London, that Europe needed to press ahead with more integration “especially in the euro area.”
“We have a chancellor of Germany that is indeed proposing a political union for Europe, which is extremely ambitious. We have a French president that has been highlighting the need for a more European approach regarding crucial issues like growth and investment. And we have a British government – and this is indeed a very interesting development – that while stating its willingness to stay out of the euro, assumes as indispensable and desirable to further integration in the eurozone.”
Good marks for optimism. In reality, though, there’s no way a banking union will be up and running within a year. Even if he was hinting at an agreement in 2013, that too is optimistic – at least on the chunkier stuff. A number of member states still have huge reservations. The UK won’t be part of a banking union regardless, and anything requiring unanimity and/or Treaty change may be used by Britain to re-heat demands for safeguards over UK financial services, which Osborne has already floated. Other non-euro members also have reservations, with the Swedes opposing a banking union based on cross-border liabilities on a point of principle and the fear of moral hazard (unlike the Treasury, which seems happy for the eurozone to do this as long as the UK is not on the hook).
Merkel will face resistance from various corners: the Bundesbank, the legal class (hello Treaty change), its financial supervisors BAFIN, the media and a host of backbench MPs. This will have to go through the German Parliament, which per definition takes time. And as for the French, we’re not entirely sure that Hollande quite has his head around what a banking union would involve – and that France’s position is somewhat fluid at the moment.
And remember, a proposal by the Commission for limited cross-border bank deposit guarantees has been stuck in the Brussels machinery for two years, at the hands of resistance in member states.
This will be a drawn-out one.Open Europe blog team