Friday, October 19, 2012

Banking Supervision is not a Banking Union

At 4 a.m. this morning, heads of government reached an agreement in principle to transfer supervision of banks to the ECB. The details of how far the ECB's powers will go, and how it will relate to the European Banking Authority to and national regulators is unclear at the moment.

This is a statement of intent rather than a substantive agreement, but a step in the right direction nevertheless. The distributional conflicts that have bogged down negotiations until now have not been swept aside. A banking union involves not only supervision of banking activities, but also measures to intervene in the affairs of the banks themselves. There is no agreement on this. More importantly, there is no budget.

The Germans are banking on the introduction of a financial transaction tax to fund cash injections, to avoid using existing tax revenue to fund bailouts. This has  a number of problems associated with it, however. The most important is that if the euro zone manages to introduce such a tax and the EU does not, it will incite euro zone companies and retail investors to move their assets the UK or Switzerland, and deter new financial flows from entering. The investment strike will take its toll on the euro zone, if such a thing is not established at the EU level. Reuters reports that only 11 euro zone countries are currently in favour.

1 comment:

  1. > a step in the right direction nevertheless

    Sorry, but a step toward central planning and socialization of risk is not a step in the right direction. Not unless you're rooting for socialism and/or totalitarianism in the EU.