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Monday, May 13, 2013

Splits in Germany (and beyond) over banking union?

It’s been a week of 'splits' over Europe and it looks like another one may be emerging – although this time in Germany.

German Finance Minister Wolfgang Schäuble had an article in the FT arguing:
"While today’s EU treaties provide adequate foundation for the new supervisor and for a single resolution mechanism, they do not suffice to anchor beyond doubt a new and strong central resolution authority.

We should not make promises we cannot keep. The overly optimistic predictions about a single supervisor starting work as early as January 2013 cost the EU credibility.

A two-step approach could start with a resolution mechanism based on a network of national authorities as soon as the new supervisor is operational, the resolution directive has been adopted and the Basel III capital requirements are in place.

A banking union of sorts can thus be had without revising the treaties, including a single supervisor; harmonised rules on capital requirements, resolution and deposit guarantees; a resolution mechanism based on effective co-ordination between national authorities; and effective fiscal backstops, also including the European Stability Mechanism as last resort."
Essentially, pointing out that a full centralised banking union is some time away, post EU treaty change. This potentially has implications for the UK, as much of Schäuble's solution, with the exception of the common eurozone supervision, would apply to all 27 members - the question for non-eurozone countries, including the UK, is how they will be affected by the 'second stage' of his solution. On the other hand, treaty change, as we've noted before would potentially enable the UK to put forward its own amendments.

However, German ECB Executive Board Member Jörg Asmussen espoused a different view in comments to the German press this afternoon:
"It is the aim [of the banking union] to make the Eurozone more robust against banking crises with an orderly, cross-border resolution of systemically relevant banks without leaving the burden on the taxpayer or the central bank."

"We think this is best ensured by a common resolution regime, a joint resolution fund that is financed by banks' contributions and a common resolution scheme…The entire tool kit should be available along with the Single Supervisory Mechanism."
So, much stronger on the need for a clear centralised authority as soon as possible, preferably when the ECB takes on its supervisory role at the start of next year. This also seems to imply then that such a move could be done without changing the EU treaties.

To be honest this is not an entirely new position, it is something other members of the ECB have previously called for. Nevertheless, it represents a fairly significant split between two leading political voices in Germany over what is now the key policy for reforming the eurozone.

It's also worth noting that at a press conference earlier today the Spanish and Portuguese leaders both put forward a similar argument to that of Asmussen on the need for an immediate 'full' banking union. Meanwhile, Eurogroup Head Jeroen Dijsselbloem said that the issue of treaty change could be dealt with "later on" but admitted that "understandable questions" were being asked on this front.

We, as with all those following the crisis, wait with bated breath for German Chancellor Angela Merkel to declare which side she comes down on. So far she has managed to dodge taking any big eurozone decisions ahead September's election in Germany, but with key discussion on banking union coming up next month its not clear whether she can continue to do so on this one.


Rik said...

Asmussen is not an leading political voice in Germany.
He is the ECB's sales representative for Germany.
ECB has a lot of power. But is simply not a decisionmaker in this issue. German parliament and Schauble as well are.

It looks extremely difficult to get a full banking union approved in German parliament. And it is anyway most likely requiring a treatychange/ So that will be used for by all for which that is convenient. Schauble and certainly Merkel are not taking up a fight at home if not strictly necessary and certainly not one they might lose and before an election.

The bankingsector needs clearly to be cleaned up especially in the South. But Germany is not guaranteeing that bill. This is completely against the direct interest of German banks as well. A lot donot operate internationally anyway and more important they already have a fund inplace (that likely would be used for spain/Italy).

It simply comes down to that the treaty needs to be changed (and the bankingsector needs to be cleaned up first before Northern approval can be counted upon. So will not do much good for this crisis.

The ECB has a huge conflict of interest there as well. Interestrates policy changes will never end up with the end user as long there is a party in between (Latino Bank) with huge funding costs. These costs will be added to the interest the end user will have to pay and are for a big part caused by the fact that everybody thinks these banks are de facto bust. And cheaper and more ECB money means that the other funders run more risks as basically all colateral moves to the ECB (which is de facto senior). In other words forget cheap credit for Latino SMEs as long as their bankingsector is a mess.
Anyway they are putting all their new funding (rise in private depositors mainly) in new Sov debt. Simply are doubling down.

Anyway having the ECB running the show probably wil mean more pressure to clean up the Southern banks. for mainly local political reasons hardly anything has happened there. Apparently first a real crisis is necessary before the banks are cleaned up.

Anonymous said...

Rather than wait for Angela or any other politician maybe they should put it to the public?

Hands up for those who want to be responsible for endless transfers or endless austerity?

Anonymous said...


Anonymous said...

A Alemanha deve dar prioridade á união bancaria e travar essa austeridade sem fim e permitir que as empresas beneficiarem de baixas taxas de juros

Rollo said...

Northern banks are nearly as bad as southern banks. What each means by banking union is different. Some countries think it means that they can borrow cheaply, and someone else will pick up the tab. Others think that it means they will be able to control the recipients. Neither is right.

Rik said...

Northern banks are bad but by far not as bad as Southern banks. Mainly for the following 2 reasons:
1) If you are operating in a country that is economically moving South you end up as a bank there with a lot of non-performing loans. Management system in the North might not be better (however often it is) , but the business enviroment is.
2) Germany (cs) can bail out its banks in a way that doesnot attract too much attention. Effectively it did after the crisis, Commerzbank is on the drip.
Would these Landesbanken and say Commerzbank have been Italian or Spanish that would not be possible.
The zombie-bank is artificially kept alive and with every disappointing news the risk comes again to the surface. Exactly what we see in Spain and Italy.

ECB policies have tied PIIGS and its bankingsector together. Which was a desperate move, that only bought some time. But basically it is tying one nearly dead to another. One goes the other one goes with it. Long term it only would have worked if it is tying a healthy one of sufficient size to a zombie.
Another reason why bankingunion will not happen in nthis crisis. The North would via liable for the Southern banks (the South itself is not credible for that anymore). And subsequently via those banks for the sov PIIGS debt. Backdoor bail out with even less control than now.

denbo said...

By the time banking changes are approved by the Bundestag and then by the court in Karlsruhe the EZ it may be a bit late.

Unless of course it is in the middle of a crisis. They will then act out of fear more than law.