Legrain, P. (2014) “Europe’s Bogus Banking Union“, Project Syndicate, 08 April.
LONDON – After a 16-hour marathon negotiating session ending on March 20, politicians, technocrats, and journalists were all keen to declare the deal on the final piece of Europe’s banking union a success. But appearances are deceptive. While the “banking union” may soon exist on paper, in practice the eurozone banking system is likely to remain fragmented along national lines and divided between a northern “core,” where governments continue to stand behind local banks, and a southern “periphery,” where governments have run out of money.
Think back to June 2012. Spain’s busted banks threatened to drag down the Spanish state, as Ireland’s had done to the Irish state 18 months earlier, while panic tore through the eurozone. European Union leaders resolved to break the link between weak banks and cash-strapped governments. A European banking union would move responsibility for dealing with bank failures to the eurozone level – akin to America, where distressed banks in, say, Florida are dealt with by federal authorities with the power to bail in bondholders, inject federal funds, and close down financial institutions.
Relevant posts:
- Begg, I. (2014) “What has been agreed on banking union risks reigniting, rather than resolving the crisis“, LSE, Euro Crisis in the Press, 02 April.
- Veron, N. (2014) “Tectonic shifts – banking union is a long-term process that will dramatically reshape Europe’s financial system”, Bruegel, 7 March.
- Merter, S. (2014) “Banking Union and Beyond: Discussion papers for Brussels Think Tank Dialogue”, Bruegel, 28 January.