BRUSSELS: In June last year, European Union leaders made a great fanfare of committing to 'banking union', a three-step plan to shore up the region's 8,000 banks and prevent a repeat of the debt and financial crisis.
Eleven months on, deep cracks have emerged in the visions member states have of the scheme, with Germany in particular raising doubts about its overall feasibility although both it and France have promised progress by the end of next month.
While the first step - to create a single bank supervisor under the European Central Bank - looks set to be in place by mid-2014, a second pillar, a 'resolution' agency and fund to close failed banks, is in doubt.
And there is little prospect that a third leg, a single deposit guarantee scheme, will ever see the light of day. In recent weeks, German Finance Minister Wolfgang Schaeuble has sent mixed signals, saying at a meeting in Dublin in April that banking union could not be done without a change to the EU treaty, then saying on Tuesday he was committed to pushing ahead with it as far as possible under the existing treaty.
The net result, officials and analysts say, is that the final structure of banking union is likely to fall short of what EU leaders first envisaged, with potentially far-reaching implications for financial market stability.
In particular, market participants are worried that having supervision without a process for closing problem banks will leave banking union incomplete.
"The two, resolution and supervision, need to go together," said Simon Lewis, chief executive of the Association for Financial Markets in Europe, which lobbies on behalf of some of the globe's biggest investment banks. "There is a lot riding on it in terms of a positive message for the stability of the system," he said.
ELECTION LOOMS
One major challenge for policymakers is understanding precisely what Germany, the EU's largest and most powerful country, wants or is willing to accept from banking union.
Berlin is concerned that a single agency for resolving bank problems across the euro zone could result in a financial burden that falls chiefly on its shoulders, with German taxpayers ultimately liable.
With elections approaching in September, no politician would want to explain why Germany might have to foot the bill for a failed bank in another country.
Schaeuble said in Dublin that to establish a system for sharing liability, the EU treaty would have to be amended since there is no provision under existing law.
Officials in Berlin have argued that without a treaty change the potential use of German taxpayer money for winding down a bank in another euro zone state could be thrown out by the country's top legal body, the constitutional court.
But changing the treaty is a monumental procedure that can take years, meaning banking union would be greatly delayed, something that is a concern to France, Finland and many other EU countries, as well as to financial markets.
That may explain Schaeuble's verbal change of tack on Tuesday. After meeting French Finance Minister Pierre Moscovici in Berlin, Schaeuble said banking union was a "priority project" and that he was committed to working towards it as soon as possible.
"We must make the best of it on the basis of the current treaties," he said, suggesting a "network of national authorities" rather than a single resolution agency - something that would be little different to the patchwork of national supervisors that already failed in the crisis.
indiatimes.com
Eleven months on, deep cracks have emerged in the visions member states have of the scheme, with Germany in particular raising doubts about its overall feasibility although both it and France have promised progress by the end of next month.
While the first step - to create a single bank supervisor under the European Central Bank - looks set to be in place by mid-2014, a second pillar, a 'resolution' agency and fund to close failed banks, is in doubt.
And there is little prospect that a third leg, a single deposit guarantee scheme, will ever see the light of day. In recent weeks, German Finance Minister Wolfgang Schaeuble has sent mixed signals, saying at a meeting in Dublin in April that banking union could not be done without a change to the EU treaty, then saying on Tuesday he was committed to pushing ahead with it as far as possible under the existing treaty.
The net result, officials and analysts say, is that the final structure of banking union is likely to fall short of what EU leaders first envisaged, with potentially far-reaching implications for financial market stability.
In particular, market participants are worried that having supervision without a process for closing problem banks will leave banking union incomplete.
"The two, resolution and supervision, need to go together," said Simon Lewis, chief executive of the Association for Financial Markets in Europe, which lobbies on behalf of some of the globe's biggest investment banks. "There is a lot riding on it in terms of a positive message for the stability of the system," he said.
ELECTION LOOMS
One major challenge for policymakers is understanding precisely what Germany, the EU's largest and most powerful country, wants or is willing to accept from banking union.
Berlin is concerned that a single agency for resolving bank problems across the euro zone could result in a financial burden that falls chiefly on its shoulders, with German taxpayers ultimately liable.
With elections approaching in September, no politician would want to explain why Germany might have to foot the bill for a failed bank in another country.
Schaeuble said in Dublin that to establish a system for sharing liability, the EU treaty would have to be amended since there is no provision under existing law.
Officials in Berlin have argued that without a treaty change the potential use of German taxpayer money for winding down a bank in another euro zone state could be thrown out by the country's top legal body, the constitutional court.
But changing the treaty is a monumental procedure that can take years, meaning banking union would be greatly delayed, something that is a concern to France, Finland and many other EU countries, as well as to financial markets.
That may explain Schaeuble's verbal change of tack on Tuesday. After meeting French Finance Minister Pierre Moscovici in Berlin, Schaeuble said banking union was a "priority project" and that he was committed to working towards it as soon as possible.
"We must make the best of it on the basis of the current treaties," he said, suggesting a "network of national authorities" rather than a single resolution agency - something that would be little different to the patchwork of national supervisors that already failed in the crisis.
indiatimes.com
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