Véron, Ν. (2014) “Euro crisis turning point: Two years of Banking Union – Europe’s leaders avoided their usual muddling-through complacency to do something radical—and it worked!“, Bruegel Institute, 30 June.
Europe’s banking union, constituting a supranational pooling of most instruments of banking policy, was established two years ago, in the early hours of June 29, 2012. To a greater extent than was initially realized by most observers, this step marked a watershed in the European crisis by making it possible for the European Central Bank (ECB) to stabilize sovereign debt markets. The banking union will also profoundly reshape and realign Europe’s financial system and institutions, with consequences that will unfold gradually.
The summit declaration establishing Europe’s banking union made three points: the intent “to break the vicious circle between banks and sovereigns”; the integration of banking supervision within the ECB; and a suggestion that the European Stability Mechanism (ESM), the euro area’s common fund, would be allowed to recapitalize banks directly under certain conditions.
Developments in Spain soon encouraged cynicism about direct ESM recapitalization. Investors only started releasing the pressure on periphery sovereign spreads four weeks later, when Mario Draghi, the ECB’s president, pledged to do “whatever it takes” to defend the euro area’s integrity, a stance later formalized as the Outright Monetary Transactions (OMT) program of conditional sovereign bonds purchases.
Relevant posts:
- Bauer, M. & Demary, M. (2014) “European Banking Union: Status of Implementation and the Need for Improvement“, Konrand Adenauer Stiftung, 23 April.
- Legrain, P. (2014) “Europe’s Bogus Banking Union“, Project Syndicate, 08 April.
- Huertas, T. & Nieto, J. M. (2014) “How Much is Enough? The Case of the Resolution Fund in Europe“, VoxEU Organisation, 18 March.