13 Dec 2012
- In Brussels yesterday, Eurozone governments salvaged something from their commitment to put in place plans for a banking ‘union’ in Europe before the end of 2012. After the high expectations of June this arrangement clearly falls far short of what the market is likely to regard as a genuine banking union. It is, in reality, not a union at all, at least not in terms of genuine risk-sharing. It is a coordination.
- This deal ‘Europeanises’ an element of Eurozone banking supervision but is hemmed in on all sides by the limits of what Berlin in particular is willing to do at this stage. Because it is limited, the loss in sovereignty is not really balanced by any overall gain in systemic stability, and thus probably no significant gain in market confidence, which is a familiar European problem and irony.
- The complex structures put in place to manage the layers and levels of integration presage the debates ahead on how to manage life in an EU with a least two tiers of membership, if not more. The politically sensitive balancing of the interests of large and small, in and ‘pre-in’, in and out suggest a model of tiered governance that will inevitably have costs in coherence, efficiency and stability.
- However, one should never underestimate the extent to which EU governance evolves by incremental advance and consolidation. Although it is fraught with potential problems, this agreement Europeanises the principle of banking supervision in the Eurozone and creates a huge new remit for the European Central Bank. Market pressure and internal tension still present a huge problem for the Eurozone as it navigates into this debate, but this is still a new foothold for a redesigned Eurozone banking system.
The views expressed in this note can be attributed to the named author(s) only.