European Union's Push for Bank Transparency
Video Transcript:
Video Transcript:
The government of Luxembourg announced on April 10 that the country will implement rules on the automatic exchange of bank account information with the rest of the European Union by 2015. The announcement came one day after the finance ministers of Germany, France, the United Kingodm, Italy and Spain sent a letter to the EU Commission proposing the creation a system of information exchange to fight tax evasion. Additionally, Austrian Chancellor Werner Faymann stated that his country is ready to discuss a more intensive exchange of information on its banking sector.
Several factors explain these moves. First, the European Union wants to have a tighter control of its banks, particularly those within the eurozone, to prevent banking crises such as those suffered by Greece, Ireland and Spain.
With this in mind, in December 2012, the members of the European Union agreed to give the European Central Bank more power to supervise the eurozone’s biggest banks. This new system is expected to start operating early next year, but the technical details have yet to be discussed. This is seen as the first step towards a banking union. In the future, the banking union is also expected to feature a common insurance for deposits. This point is highly controversial and has been postponed.
The European Union’s push for a more transparent banking system is also explained by the traumatic bailout for Cyprus, which rekindled fears of the health of all the banks in the eurozone. After the rescue, many eurozone countries expressed concern about countries with opaque and oversized banking sectors. Although the banking sectors in Austria and Luxembourg are considered to be relatively stable, Brussels is concerned about the secrecy of both systems.
Concerns about banking secrecy is nothing new in Europe. Ten years ago, the members of the European Union agreed to implement a system of automatic exchange of banking information between member states in order to fight tax evasion. In a typical European fashion, Austria and Luxembourg were granted exceptions and allowed to remain outside this system. As the controversial bailout for Cyprus showed, Brussels wants to make sure it has knowledge of what is going on in the banks of the eurozone.
Finally, EU leaders are pushing for more bank transparency for domestic reasons. Last week, a scandal shocked France when a former budget minister admitted to owning a secret account in a foreign bank. This led the government of Francois Hollande to promise a stronger fight against tax evasion. Corruption scandals are also shocking other eurozone countries, such as Spain and Italy, and weakening an already fragile popular trust in mainstream political parties.
While the European Union is trying to improve control over its banking sector, questions about enforcement remain. Moreover, recent reports of an increase in capital flights from the periphery to the core of the eurozone and the questions that where opened after the Cypriot bailout suggest that Europe will continue dealing with fragile banks in the future.
