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Completing Europe’s Banking Union means breaking the bank-sovereign vicious circle

Isabel Schnabel, Nicolas Véron, (2018), «Completing Europe’s Banking Union means breaking the bank-sovereign vicious circle», VoxEU, 16 Μαΐου

Several euro area leaders, including the German chancellor, her finance minister, and the French president, have recently referred to the need to “complete the Banking Union”. These public calls echo those made in more formal settings, in intergovernmental meetings (European Council 2014) and in European Commission communications (European Commission 2015) over the last half decade. They inevitably raise the question of what criteria should be used to assess the Banking Union’s completeness. A narrow interpretation, based on euro area leaders’ past commitments, equates it with breaking the bank-sovereign vicious circle; a more ambitious long-term vision for complete Banking Union implies the removal of all cross-border distortions within the euro area banking market. Even the minimalist version, however, entails more reforms than those publicly under current consideration. “Banking Union” has become a widely used expression to refer to the project of shifting banking sector policy instruments from the national to the European level, but there is no official or legal definition of what it is or should be. Its first recorded use in public (Veron 2011) was made outside of officialdom (albeit on a suggestion from a European Commission official, Maarten Verwey), and it was gradually popularised in expert circles and the media. Euro area leaders endorsed Banking Union as their policy at a landmark summit in late June 2012, but waited almost a year until adopting the expression itself.

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