The Banking Union is a milestone in European integration and shared responsibility. It reflects all the truths and lessons of the past years back at us: the crisis has already proven how closely knit the European banking sectors are and that European states do stand together. But it also shows us that no state, whether on its own or collectively, can stand up to the power of the banks.
No means to control or regulate
The Banking Union gives the European Central Bank the authority to oversee Europe’s largest and most significant banks and the power to re-capitalize and resolve them in case of bankruptcy. Over the past week, ministers of finance have fought over the construction and the funding of the banking union. Whilst Mario Draghi and French MPs support the unilateral authority of the ECB, Germany prefers a system that leaves the decision on which banks to wind up to the finance ministers.
Britain, though not in the Euro, wants all EU members to have a say in order to protect the City of London from European Central Bank regulations that might stymie its status as a world financial center. Whilst a 55 billion euro Single Resolution Fund will be set up over the next ten years, there is contention on whether the ESM funds should be used in the interim.
Whilst all of these questions are important, they have also managed to move public discourse entirely away from the actual problem: the power of the banks and the fact that we still have absolutely no means to control or regulate them effectively.
At its core the crisis of the last 5 years is a banking crisis. European banks – from large to small – have brought entire states to their knees and played Russian roulette with taxpayers’ heads:
-In Ireland, 64 billion euros were spent to get the Irish economy back on track and release it from the clasps of the Troika. Yet there is no certainty that its three largest banks will pass the “stress tests” next year.
-In Greece, the practice of bailing out a bankrupt state in order for it to bailout bankrupt banks, repeatedly, became known as the “doom loop” which didn’t only threaten the existence of the Greek state but contaminated other states and broke many people’s faith in the Euro.
-In Germany, banks as seemingly small and insignificant as the German Landesbanken almost crippled Europe’s strongest economy by collectively purchasing Mortgage Backed Securities and other financial products that they could not themselves evaluate.
-In Cyprus ordinary citizens were forced to contribute part of their savings to rescue the banking sector.
-Last but not least, banks are not subject to the laws of governments or even those of the markets. The EU-wide cartel of Barclays, Deutsche Bank, Société Générale, RBS, UBS, JP Morgan, Citigroup and RP Martin have managed to rig key benchmark interest rates (Libor and Euribor) and probably the terms and prices of many of their products, including Credit Default Swaps.
One would expect the construction of a new super-regulator to be committed to reinstalling states with power over the banking sector and fundamentally changing the latter. The banking union that was agreed on yesterday achieves neither. Whilst it promises “no more privately funded bailouts”, none of its substantive provisions (CRD IV or Basel III) actually change the way banks do business or decrease systemic risks – risks resulting from contagion and other banks failing.
The banks win
In addition, the insolvency and bankruptcy regime is crucial but it does not prevent banks from failing in the first place and the taxpayer’s money will still be spent resolving or restructuring them. Most of all, it still has the odious whiff of yet another promise to banks that they will certainly be helped in times of crisis and that the member states have already started collecting funds.
More promising and rigorous regulatory measures have been left to the member states. However, they show little sign of taking bold steps against the financial sectors and instead remain perpetually concerned with the competitiveness of their banking sector, particularly compared with those of their European partners. Bullet or blank; the banks win.
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