Banking Union and Potential EU Division (Portfolio)
Video Transcript:
Video Transcript
The banking union proposed by the European Commission on Sept. 12 is one form of deeper eurozone integration that will be debated extensively in the coming months. The disagreements over the current proposal show that divergent national interests delay eurozone integration and will likely lead to a greater divide between the eurozone and the remaining 10 EU countries.
Integration and stronger centralized supervision are considered important to overcome the structural crisis in Europe. However, over the past week government officials across the EU have stated that the current banking union proposal -- one aspect of deeper integration -- is unacceptable or too ambitious in its current form.
The European Commission suggests three broad revisions to current regulation. First, starting in January 2013 the European Central Bank -- ECB -- should become the supervisor over Eurozone banks that have asked for government assistance. By 2014, the ECB would supervise all Eurozone banks. Second, once the banking union is in place the commission suggests centralized restructuring and pooling of funds to aid troubled banks. Third, the position of the European Banking Authority, which currently supervises the financial institutions in the entire EU, would have to be revised considering the ECB would take on a new supervisory role.
The banking union for the eurozone has to be approved by the 27 EU states and non-eurozone countries can decide to join it. The ECB will unlikely take on its job as banking supervisor in January 2013 as originally planned considering the differing interests and technicalities that still have to be worked out among countries and within the European parliament.
Certain eurozone countries are skeptical about delegating supervisory power of all its banks to the ECB and are against cross-border pooling of resources to bailout banks.
The non-eurozone countries fear being dominated by the new supervisor that would represent the entire Eurozone, potentially weaken the role of the current European Banking Authority and force regulation upon their banks operating in the eurozone. Some of these countries are skeptical about the banking union proposal because they have large banking sectors and want to establish bank regulation that is most suited for their financial sectors. This is for example the case in the United Kingdom. Other countries want to be treated as equals should they decide to join the banking union even if they currently aren't eurozone members.
It is likely that a watered-down version of what is currently proposed will be implemented later in 2013. However, this will delay and effect the bank bailouts in eurozone countries.
In June, the eurozone decided that the new permanent bailout fund -- the European Stability Mechanism -- would be allowed to directly recapitalize banks once a banking union has been created. Establishing a direct link between the banks and the bailout fund would decrease government debt. This is important for Ireland, Spain and Cyprus, countries that already have or are about to bail out their banks and therefore had to request aid.
There is currently a trend towards greater eurozone integration. In June, EU officials proposed creating a "genuine economic and monetary union" among eurozone countries. In the coming months, several proposals for stronger fiscal and political union will be debated. However, the discussions around eurozone integration risk further dividing the currency union and the remaining EU members. The EU countries that are not part of the currency union will have to rethink their aspirations of joining the eurozone and potentially seek other forms of regional collaboration to increase national security and counter a strong currency union.
