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

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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

    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

    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

    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

    Comment number 62.


    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

    Comment number 61.

    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!

  • rate this

    Comment number 60.

    Germany hasn't got any money either. Its 80% GDP debt it is hardly comparable to China's $3 trillion reserves.

    Could Portugal save Greece? No.
    Could Ireland save Portugal? No.
    Could Spain save Ireland? No.
    Could Italy save Spain? No.
    Could France save Italy? No.

    And yet people think that Germany can save all of them? Seriously?

    The Germans are reluctant to go all in because it's suicide.

  • rate this

    Comment number 59.

    "strengthen single market"?

    'Protection' for UK 'financial services' resembles that for 'French farmers' & 'Italian bosses'

    We see 'market failure', hoard or export not intelligent domestic investment

    The citizen-security needed for democracy & macro-economic stability, would end the 'creaming function' of our savings, mortgage & personal insurance 'industries'

    Time to 'join the human race'?

  • rate this

    Comment number 58.

    In fact euro denominated debt is foreign denominated debt for euro countries because they are users rather than issuers of euros. Worse they operate in a currency area where the central bank won't operate like a central bank.

  • rate this

    Comment number 57.

    Of course the unelected technocrats in Brussells want a Federal Europe and control over the member-state banks. The gravy-train mentality is the sick heart of Europe.

    Sadly a bunch of lack-lustre politicians who have managed to create a mess of Pythonesque proportions will do anything rather than accept they might be somehow culpable.

    Federal Europe? No thanks. Commonwealth for me please.

  • rate this

    Comment number 56.

    Just get out of the EU now. 80% of Brits want it, so about time it listened.

  • rate this

    Comment number 55.

    42 Amet
    I assure you that I do understand hyperinflation and the downfall of the Weimar Republic.

    your comments suggest you don't & I very specifically said the EU as a whole has very little debt in foreign currency

  • rate this

    Comment number 54.

    This looks more and more like money printing till the 12th of Never in order to make the super rich even richer and to beggar the other 99%.

    Should I buy gold and silver now?

  • rate this

    Comment number 53.

    42 Amet

    I assure you that I do understand hyperinflation and the downfall of the Weimar Republic.

    Just to point out that the Eurozone countries do have their debt in a foreign currency

    It's called the Euro.

  • rate this

    Comment number 52.

    (cont) In any single currency zone for it to be successful it has to deal with economic dislocation between rich and poor areas. That means large scale movement of people from poor to rich areas and large scale govt spending moving the other way. There is no evidence that this will be accepted by individual EU countries (Germany for spending and France re immigration)

  • rate this

    Comment number 51.

    Would you trust the EU to regulate a banking union? They cannot regulate themselves, let alone agree on what to regulate.

    Remember those ridiculous stress tests that found all of their banks to be just fine and dandy?

    When will they 'regulate' their own set of unaudited accounts that have now been sitting there for the last 17 years?

  • rate this

    Comment number 50.

    Barroso pushes EU banking union.....he couldn't push a pram much less fill one!
    45. John_from_Hendon ; England needs? Your denial of democracy is even worse!
    mmm somewhat of a contradiction on the same post John.
    A referendum will decide what England/The UK needs...NOT John!

  • rate this

    Comment number 49.

    Banking Union?

    Will this still leave the power to create money in the PRIVATE banking sector?

    If it does then total collapse will follow (fire sale included)..

    What is needed is full MONETARY REFORM ie take back the power of money creation from the banks and return it where it should be with the STATE!!

  • rate this

    Comment number 48.

    So far the crisis has outrun the politicians and there is no indication that this will change

    That gives the wrong impression. Its outcrawled them. The "Eurocrisis" has been going on about 3 years, they could have fixed it in days if they'd acted decisively back then or before it even happened & at a fraction of what it will cost now.

  • rate this

    Comment number 47.

    JfH I understand you are a committed Europhile, there is nothing wrong with that, but please do not misrepresent the views of those who disagree with you. It is not always true that the UK wants laxer regulations, most recently EU opposed UK imposing higher capital requirements on UK banks than EU wanted because it might prejudice weaker EU banks.

    The banking union is unlikely to happen (TBC)

  • rate this

    Comment number 46.

    So far the crisis has outrun the politicians and there is no indication that this will change. The prospect of ever closer political and economic union is inevitable I supppose.


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