• After the European summit of 18-19 October a two-folded conclusion can be drawn: the European banking union has been put forward and nations’ interests still diverge. After a night of discussion, as usual at these summit, European leaders agreed to establish a banking supervisor for the eurozone, the first pillar of a concrete banking union (the others are a centralized management for crisis and a banks recapitalisation system), at the latest by the end of 2013. “Member States would aim to agree on a legal framework by 1 January 2013”, this is the wording of the official final agreement.

    The EU’s view is that a sound banking union is fundamental to achieving the economic and monetary union that can remedy the current crisis. According to the European Commission’s original proposal, the banking supervisor would watch over all 6,000 banks in Europe by the end of 2013 allowing the European Central Bank (ECB), which has supervisory powers, to intervene in the event of crisis or potential default. Thanks to the European supervisor, the ECB would not only be allowed to shut down a hazardous bank but to grant funds via the new established European Stability Mechanism (ESM).

    At their traditional post-summit press conference, European Commission president José Manuel Barroso and European Council president Herman Van Rompuy stressed that “the urgent element now is setting up a single supervisory mechanism to prevent 
  • banking risks and cross-border contagion from emerging”. At present, the ESM is completely useless as the primary calm down effect on the markets is over.
    Nevertheless here it comes the bad news. Once again Member States disagreed on how the supervision should take place and, last but not least, on the timing of it. Germany succeeded in stopping the direct recapitalisation of banks in trouble without a complete supervision mechanism in force. Hidden behind the boutade of stronger central powers for the European Commission to veto national budgets, German Chancellor Angela Merkel obtained what she really wanted: no immediate help for Greek and Spanish banks. Even though the agreement of the central supervisor is without any doubt a step forward a more integrated monetary union, its timing lacks of ambition. For this reason, France and Spain pushed for the supervisor to be in place by the end of the year, but Mrs Merkel judged this option to be “technically impossible”.

    Moreover, Germany pointed out that “banks must be supervised in a differential way” as Berlin see all 6,000 banks being under the EU control as “unrealistic”. To be honest, Mrs Merkel should have said “envisageable” as what Germany really seeks is to avoidhaving all of its banks supervised by Brussels. In his regard, French president François Hollande, after a volcanic arrival at the 

  • summit (when he made clear that there were no room for discussion on a EU veto on national budgets), stated that the EU should start supervising the banks receiving state aid before moving on to larger cross-border institutions. In this regard, most day-to-day oversight would be delegated to national bodies.

    Mr Hollande added that the new system needs “a council of the eurozone to meet on a regular basis” and “different speeds agreed by everyone”. In other words, this proposal means that European Financial Ministers should meet more often and have more control on the bank situation, even though the supervision system has been studied, draft and put in place by the European institutions. Once again La Republique française tries to assure a primal role in driving the future of Europe by switching the control of the future banking union from the EU to Ecofin, the meeting of European Finance Ministers.

    A final proposal for the bank supervisory mechanism is due to be agreed by the end of the year. Let’s see what is next.

    Alessio Pisanò

    JEF member twitter: @AlessioPisano