A New Year’s Banking Union

In June, European heads of state and government committed themselves to the creation of a single European supervisor for banks in the eurozone. Now they have to resolve several remaining questions in order to establish Europe-wide bank supervision by January 2013.

BRUSSELS – Five years after the outbreak of the financial crisis, Europe’s economic and political situation remains fragile. A mild recession is expected in Europe this year, and unemployment is on the rise. Beyond deficit reduction, we need to implement a €120 billion ($155 billion) European investment plan, and deepen the European Single Market to unleash its growth potential.

But we also need other structural measures. The European Union must put an end to the negative feedback loop between individual member states and their national banking systems. Between 2008 and 2011, EU taxpayers granted banks €4.5 trillion in loans and guarantees. In some countries, the threat of bank recapitalization with public funds has resulted in a drop in market confidence and a huge rise in interest rates.

The European Central Bank (ECB) has taken decisive action to break this vicious circle. Moreover, there is now a consensus that the 17 eurozone countries need a banking union to accompany their common currency. The European Commission has proposed a single rulebook for banks’ capital requirements; mutual support between national deposit guarantee schemes; and Europe-wide rules for resolving failing banks that place the main burden on bank shareholders and creditors, not on taxpayers.

To continue reading, please log in or enter your email address.

To access our archive, please log in or register now and read two articles from our archive every month for free. For unlimited access to our archive, as well as to the unrivaled analysis of PS On Point, subscribe now.

required

By proceeding, you agree to our Terms of Service and Privacy Policy, which describes the personal data we collect and how we use it.

Log in

http://prosyn.org/B64Rt76;

Handpicked to read next

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.