The European Crisis and National Sovereignty (Portfolio)
Video Transcript:
Video Transcript:
This past weekend, the European Union granted Spain a bailout of up to 100 billion euros for its banking sector. This rescue took place in the middle of a debate over the creation of a banking union amongst EU countries. According to the French Finance Minister Pierre Moscovici, the bailout is a first step towards such a union. However, the reality is more complex.
At the core of the debate about the banking union lies a deeper issue: the question of sovereignty of European states.
The banking union proposal has two main features. First, it involves the creation of a shared financial regulator. Second, it means the creation of a single deposit guarantee and capitalization fund for banks.
The creation of a common deposit guarantee is the thorniest aspect of the proposal, and has been a controversial issue since the European Commission first suggested the idea in 2010. Under this system, deposit guarantees in healthy banks could be used to assist troubled banks in other countries. In other words, money put aside to guarantee deposits in German banks could be used to guarantee deposits in Spain.
The idea was immediately rejected by the United Kingdom, whose banks are among the strongest in Europe. Then Finland said it could not accept a European banking union that requires joint liability. Germany in turn considers that a banking union is only possible after EU states achieve greater integration of their fiscal policies.
Most European countries see their banks as a national strategic asset. In Europe, banks are the main source of financing for governments, companies, and individuals. Banks often have a role that goes beyond finance, as small and medium-size savings banks are often the only source of funding for local governments. As a result, attempts to establish external oversight of the system are often seen as a compromise of national sovereignty.
The dispute over a banking union resembles other debates that Europe has had in recent months, such as the creation of a fiscal union or the launch of eurobonds. All these proposals involve a transfer of funds from the center to the periphery of the Union -- and all involve the loss of national control over different aspects of the economy.
Most of the ideas that have been suggested to overcome the crisis demand for the European nations to cede their sovereignty to unelected authorities in Brussels.
In the short term, this idea may sound like a promising way out of the crisis, especially for the nations that are currently under market pressure.
In the long term, the loss of control over their budget and banking sector would leave the nations under the authority of an external force, a concept that threatens the very existence of the nation-state as we know it today.
The European Union was built on a dual dynamic. On one hand, countries have gradually ceded sovereignty, especially in economic affairs. This sovereignty has been transferred to supranational and intergovernmental institutions in charge of the governance of the European Union.
On the other hand, countries have decided to manage some sensitive issues by themselves and keep their sovereignty. Budgetary controls and banking regulations are some of those issues. Countries have been losing sovereignty in these areas, but concessions are becoming increasingly hard.
This key contradiction between EU integration and national sovereignty undermines the European project from its foundations. While on the surface the European crisis seems financial, it’s basically political.
This dual dynamic makes every key decision of the Union a painful debate over the future of national sovereignty, as the discussions around the Spanish banking bailout show. As a result, the choices for member countries will become increasingly harder to make, and the pressures on the European Union -- due to its foundational contradictions -- will become all the more intense.
