Eurozone’s Banking Union: it’s Germany versus all the others

Angela Merkel1

After the euphoria following the agreement on banking supervision that was finally reached between the 27 member states – the embryo of a banking union – the European press, given the details of the mechanism worked out in Brussels, has lost some enthusiasm.

The widespread feeling that ground was ceded under pressure from the “Diktat” of Germany, which insisted that the single European supervisor would have no oversight of its local banks, has spurred criticisms.

“The agreement seems to be on a large scale, but in reality it is not enough,” writes NRC Handelsblad. “Coming four years after the start of the subprime crisis, it’s disappointing.” The Dutch newspaper particularly regrets that “The vast majority of the 6,000 [European] banks remain the responsibility of the national regulators, and therefore depend on mutual trust between banks, which in the past has been more wobbly than we thought. The subprime crisis has revealed just how interlinked all the banks are. No one saw that clearly until it all fell apart. Look at what happened in Iceland and especially in the Fortis affair, where national interests took precedence over the general interest. Only a centralised monitoring authority for all banks can combat that. In addition, decisions have not yet been made on two critical follow-up steps: the closure of banks that fail, and a common financial safety net that would separate the fate of the states from that of the banks.”

In Germany, the Frankfurter Allgemeine Zeitung unleashes a salvo of arguments that the new banking supervision is very bad news, coming as it does just when banks in the eurozone are carrying three times more debt than the member states. For the FAZ, the central problem is the omnipotence of the European Central Bank (ECB) – an unelected institution, the daily observes. Wearing two hats – central bank and supervisory authority – it will not be able to fulfill its function of guaranteeing price stability.

“While joint supervision of European banks makes sense, placing that supervisory authority under the roof of the ECB is very far from being a sound idea. Until now, the sole obligation of the ECB was to ensure price stability. Henceforth, the supervisory role will force it to live with a conflict of objectives. How will it decide if inflation requires an increase in interest rates, when that is precisely what may bring down the banks? Finally, one may doubt whether the ECB will come down all that harshly on financial institutions that they have been keeping alive as zombie banks for years by injecting money into them.”

*Continue reading on

About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

Be the first to comment on "Eurozone’s Banking Union: it’s Germany versus all the others"

Leave a comment