Eurozone banking union: The big bazooka

 

EU officials call for European banking union

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The European Council looks set to approve the first stage of a eurozone banking union at its meeting in late June.

President Jose Manuel Barroso's call in the Financial Times for Europe to create a single banking regulation system and a financial backstop is highly significant: Germany is believed to support a move to create at least stage one of the union rapidly, ie common supervision, with 1 January 2013 mooted as the start date.

However, a full banking union, in which the eurozone states agree to a common deposit guarantee, with the implied support of the eurozone states for systemically important banks would need a treaty change.

The UK government "quad" met last week to discuss the move and supports it, including the creation of a pan-euro backstop for the banks. However, the UK will remain outside, and will demand a strengthened 27-member single market in financial services.

I understand that the ECB backs the plan, but the UK government believes Germany is not yet persuaded of the full fiscal union.

The Barroso proposal aims to quickly create a common bailout fund backed by levies on the eurozone banks, skirting the need for direct fiscal transfers. The UK government believes the plan as outlined in the FT interview is achievable without treaty change.

Barroso's move comes as Spain's borrowing costs spike above 6.5%, raising fears that the tempo of crisis could outrun that of the policy makers.

Nevertheless, what is clear today is that the EU policy elite has chosen banking union as the circuit breaker rather than an attempt to create ever larger firewalls around sovereign debt.

This is logical since the critical mass is now in the banking system, not the sovereign debt markets.

 
Paul Mason Article written by Paul Mason Paul Mason Former economics editor, Newsnight

End of an era

After 12 years on Newsnight, Economics editor Paul Mason has moved on to pastures new and this blog is now closed.

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  • rate this
    +1

    Comment number 65.

    #60 that is the problem there is no money left it has all been spent and parties with , unless you print more and then risk masive inflation and then the final major implosion of it all.

  • rate this
    0

    Comment number 64.

    Permit me a perspective from Australia, which became a federation of states in 1900.

    Comparisons: Western Australia is Germany (mining boom), NSW is France (muddling along) and Tasmania is Greece (only industry is tourism).

    With one currency + economic & political union via Canberra it still works.

    But how do you achieve this in the EU with so much bad blood and the system in crisis?

  • rate this
    0

    Comment number 63.

    AMET @21
    "democracy from fiscal rectitude"

    Would it not be the other way round?

    Murdoch, long ago despairing of progress in pseudo-democracy, accepted profit in role of Jester, backing Money against Naivety, 'against Europe' rather than 'for Democracy'

    Time not to 'follow'?

    Vote "Equal Democracy', to make votes democratic!

  • rate this
    0

    Comment number 62.

    tobus@60
    "suicide"

    Even without account of 'German advantage' (geography & inheritance, steadily magnified by differences in employment & so debt-burden), even if our smaller siblings have become 'stuck in the mud' (in part by their own misadventure), will we (UK as well as Germany & France) not 'go back' to rescue from the tide?

    So, we all get 'muddy', need to 'recover' together: family intact

  • rate this
    0

    Comment number 61.

    Justin@47,52
    Helpful
    Some logic
    ('committed anti-Europhile'?)

    Further, in 'any single currency state or zone' there will be unevenness in an infinity of dimensions, 'geography, people, assets'

    Even with stable income equality & reasonable allocation of start-up funds, full employment will involve pressures 'eventually to move to work'

    Ludicrous dispersals of heavy industry etc, NOT necessary!

 

Comments 5 of 65

 

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