A German-shaped Banking Union

Finance ministers have reached a strenuous deal on the Banking Union once Germany has lifted the objections leading up to now to a deadlock. Agreement has being tailored, as might be expected, to meet the fundamentals concerns raised by Wolfgang Schäuble. Green light to the European Central Bank supervision will only cover big systemic banks, those whose assets go beyond a €30 billion threshold. Avoiding intrusive meddling into smaller entities ranked as a top German priority, mirroring the serious concern voiced by domestic regional saving banks.

The “euro-outs” problem will be solved following the proposal floated by the UK for a double majority voting within the European Banking Authority plus additional concessions on the binding nature of ECB decisions. Once Sweden dropped its demand for a Treaty change and aligned itself with the UK, this venue became the only serious option on the table. Even so, these prominent outsiders will remain outside the Banking Union.

Germany has also imposed a slow timetable in handing over to the ECB the watchdog powers over banking supervision. It will take up this job not before March 2014, but as no deadlines are envisaged the date can be delayed till every detail is finally arranged. This move has effectively sunk any lingering hope on frontload support from the European rescue fund. The mood back at home doesn’t invite to indulge in any generous leaning when taxpayers’ money is at stake in the eve of an election year. Having the social-democrat leader openly denounced any attempt to foot out of the German budget any bail out for troubled (foreign) banks, Ms Merkel lacks any room for manoeuvre over this sensitive issue.

So don’t expect a single penny to be spent on banking restructuring processes for a long time to come, a nasty prospect for neighbours anxiously awaiting the common supervision agreement as the last hurdle in their attempt to clean up their messy banking industry. France while bitterly disappointed on a deal that falls short from earlier expectations has no choice other than taking what Germany is willing to offer. It will find little consolation in preserving the Banking Union safely on course. Lacking any financial muscle the initiative will amount to an empty shell for the moment being.

About the Author

JP Marin Arrese
Juan Pedro Marín Arrese is a Madrid-based economic analyst and observer. He regularly publishes articles in the Spanish leading financial newspaper 'Expansión'.

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