Germany Opens to Banking Coordination in Drive for Fiscal Union

[jimmy olsen]

Isn't this too little too late?

http://www.bloomberg.com/news/2012-06-05/germany-opens-to-banking-coordination-in-drive-for-fiscal-union.html

Germany Opens to Banking Coordination in Drive for Fiscal Union
By Rainer Buergin and Tony Czuczka - Jun 5, 2012 6:47 PM GMT+0900


Germany is open to closer European coordination to resolve the euro area's banking troubles as the government backs moves to deepen political and economic union, Finance Minister Wolfgang Schaeuble said.

Schaeuble's backing for efforts to tighten banking cooperation, made in an interview published in today's Handelsblatt newspaper, follows comments by Chancellor Angela Merkel last night in which she said that systemic banks may need supervision at the European level.

Ratification of the fiscal pact locking in debt and deficit limits "is one step, but it's not yet sufficient," Merkel told reporters in Berlin before talks with European Commission head Jose Barroso. "So we will also talk about to what degree one has to bring the systemic banks under specific European supervision to keep national interests from playing too large a role."

German officials are stressing efforts to push for closer union in Europe as the financial crisis in the euro region shifts from Greece to Spain's banks. Spanish Budget Minister Cristobal Montoro said today that European institutions should help shore up the nation's lenders, the first call for outside funds. Germany says Spain should tap the bailout fund if needed.

Finance ministers from the Group of Seven countries plan to hold a call today to discuss the debt crisis in Europe.

Schaeuble reiterated the government's rejection of debt sharing as a solution, telling Handelsblatt the euro region needs "a real fiscal union" before joint debt management can be discussed.
Redemption Fund

Asked whether the German government might consider a redemption fund as proposed by its council of economic advisers, Schaeuble said that Barroso and European Central Bank chief Mario Draghi were charged by European leaders with "developing a concept for how we can achieve fiscal union as a next step after the fiscal pact" and the permanent rescue fund. "But that's a medium-term project," he said.

The redemption fund is among measures on the agenda for talks due today between Germany's opposition parties and the government. The opposition is pressing for concessions from the government on growth and other steps in return for the support Merkel needs to pass the fiscal pact in the German parliament before July 6.

Resolving the crisis will require a mix of short- and longer-term measures, including a so-called banking union as proposed by Barroso, Schaeuble said. He said the proposal consists of three elements: a central banking oversight body; deposit guarantees; and "the question of whether, and if yes, how we can develop national bank restructuring facilities into more of a European network."

Merkel, whose meeting with Barroso was aimed at preparing for an EU summit on June 28-29, said that Germany was open to discussing more common economic policies as the 17-nation euro region strives for "more Europe, not less."

"The world wants to know how we see the political union in complement to the currency union," Merkel said. "That requires an answer in the foreseeable future and Germany will be a very constructive partner."

[Valmy]

Um I guess if something like this was even politically possible before the crisis.  But no it is never too late to try to solve problems.  I mean it is not like the debt crisis is going to have Europe fall into the sun.  Plans need to be made for the future

[Sheilbh]

It's a good and important move.  But banking union's very difficult to achieve, I think it could even be more difficult than some form of fiscal union.  I mean the implementation of Basel III within the EZ is still being discussed.

[Valmy]

Basil III?  I do not know if a Neo-Byzantine Empire is the way to go.

[PDH]

Basil III?  I do not know if a Neo-Byzantine Empire is the way to go.

As long as he kills Bulgars this has my vote.

[Martim Silva]

Um I guess if something like this was even politically possible before the crisis.

Before the crisis? No.

And that is precisely why the current situation can be seen as an opportunity to create a deep and unprecedented European political unification - because now many countries that would oppose such an Europe have no choice but to accept the inevitable.

[Sheilbh]

I thought this, from the FT, was a good hint of why not to get excited:

http://blogs.ft.com/brusselsblog/2012/06/ten-things-to-remember-about-a-banking-union/#ixzz1x7Kq8G2X

Ten things to remember about a banking union
June 6, 2012 1:45 pm by Alex Barker

Some issues bear in mind when considering whether a European banking union is a realistic possibility. None of the difficulties highlighted are impossible to overcome. But it would be a wrench.

1. Germans don't like strong EU supervision of their banks. Berlin is fond of federal EU solutions. But it is even more keen on running its own banks. The political links — especially between the state and regional savings banks — are particularly strong in Germany. To date Berlin has proved one of the biggest opponents of giving serious clout to existing pan-EU regulators.

2. Germans really don't like strong EU supervision of their banks. There is again some wishful thinking about Berlin shifting position. Angela Merkel did say she supported EU supervision. But there were important caveats. She referred to supervision of "systemically important banks" — which is likely to exclude the smaller Sparkassen banks and the 8 Landesbanks. To some analysts, this represents a giant loophole. She also did not explain what kind of supervision. Berlin may only support tweaks to the current system.

3. Germans don't like underwriting foreign bank deposits. Another pillar of a banking union is common deposit insurance. To Berlin this proposal represents another ingenious scheme to pick the pocket of German taxpayers. A weaker proposal to force national deposit guarantee schemes to lend to each other in emergencies has been stuck for two years in the Brussels legislative pipeline. Most countries opposed it. German ministers say it could be considered, once there is a fiscal union across the eurozone. So don't wait around.

4. A single EU deposit insurance fund requires unanimity. The grand fix to fear of a bank run is a single EU deposit guarantee scheme. Given this would need to insure more than €5 trillion of household deposits, it is no small challenge. The added complication is legal. Even if the fund is largely funded by banks, the Council lawyers insist that this is effectively a taxation issue, which requires unanimity under treaty law. Britain would certainly say no, even before the Germans.

5. A eurozone banking union is unlikely to stay at 17. Britain giving up control of its banks to a central EU authority is a near political impossibility. So it would probably need to be eurozone fix. The trouble for the UK is that it is unlikely to stay at 17 euro area countries. Newer member states in Eastern Europe would see it in their national interest to join, given their economies are largely financed by branches of eurozone banks. A pact for banking union is likely to be at 23 or more.

6. The European Banking Authority is in the wrong place. The most obvious institution to act as the most powerful EU bank supervisor is the EBA. But it is based in London. Big problem.

7. But they might not need a new treaty change or the EBA. Hidden in the EU treaties is a fascinating short cut to a banking union. With a unanimous vote of the European Council, the European Central Bank can be empowered as a bank supervisor. This could be contained to the eurozone. It avoids the political headache of more treaties. And it is faithful to the unsaid rule of this crisis: central bankers should win more power, regardless of whether they deserve it.  The catch is that the European Commission hates the idea, because it gives power to a separate institution. And the ECB is not massively popular in some member states.

8. Building a union takes time. Making the leap to a genuine banking union requires a dramatic shift of sovereignty. Many senior EU officials it can only be achieved in small steps. Even if there was a massive political pact, putting in place the logistics of a union would take years. Just think of the experts that must be hired, the institutions that need to be set up, the complex new rules that must be agreed.

9. But even the short-term fixes require a banking union (of sorts). The hottest proposals on short term crisis-fighting is to allow the EU bailout funds (the EFSF and ESM) to shore up banks directly with extra capital, without increasing the government's debt pile. Even that, though, requires a form of banking union. Who would decide what capital a bank needs, what restructuring is required and how the (ownership) stake should be managed and sold down? If the money bypasses the sovereign, should it retain the power to make these decisions? If instead the EU institutions decide how the EU money is used, then that is another step towards a banking union. The question is whether the expertise and institutions exist to do it.

10.  Britain could live with a banking union, but no one has worked out how Deep down, London sees the banking union is a good thing, a fix to the eurozone crisis. But officials recognise this will be a turning point for the UK's membership. If the single market is cleft in two on financial regulation, what does it stand for? There is frantic work going on to work out some safeguards (didn't they go well in December) or a structure that would allow happy co-existence. But no one has found the answer yet.

I think there are two other things.  Point 1 should be expanded.  I can't think of a sector more full of 'national champions' and state-business links than banking.  So not just Germany but most of the EU would have problems with that.  The other problem seems to be that in addition to Britain, Switzerland would be out of this.  How successful would the system be if two of Europe's major banking sectors sat it out?

Edit:  Also the free movement of capital and single services market is still very weak.  Surely that should be achieved before any of this is helpful?

[jimmy olsen]

Good find Sheilbh. Puts things in perspective.

[Admiral Yi]

#9 is key.  Banking union is just a pooling of risk (everyone benefits equally) *if* everyone starts from a position of solvency.  If not, as with Spain's current situation, it's another form of German charity.

[alfred russel]

There is a thread for this topic you might have missed...it has about 1500 posts and 17k views so far...

[jimmy olsen]

There is a thread for this topic you might have missed...it has about 1500 posts and 17k views so far...

That's not the be all end all of all European economic threads.