Graham Bishop's blog: May 2012 Financial Services Month in Brussels
On the last day of May, the European Commission published more than 1500 pages of analysis and recommendation that marked the full emergence of a political union of the euro area. But markets and media failed even to notice it, let alone recognise its importance. That might not matter too much – except that the commentary about the loans to Spain completely failed to understand that Spain is effectively in a Programme – just as all euro area members are. The only difference is the degree of surveillance. The way forward is analysed in my new pamphlet: `A timeline for sequencing the grand euro strategy – No taboos’ view.
The next phase in this process was debated by ECON which said the European Commission should have more control over fiscal policy in Member States, but not the free rein it asked for - stating its position on the economic governance "two pack". Bruegel argued that Member States are going to be subject to strong pressures for change - a first clear test of the extent to which Member States have internalised the need for radical change following the debt crisis.
This leads straight on to the issue of a ’banking union’ - debated by Bruegel thinkers, Pisani-Ferry and Véron. It was discussed by EU leaders at their last meeting and has been endorsed by the European institutions. Banks massively hold government bonds issued by their sovereign, and those sovereigns are solely responsible for bailing out banks headquartered on their territory. This creates a potential for vicious circles and even self-fulfilling crises. What is a banking union? Assigning to the European level the responsibility for deposit insurance, bank supervision and crisis resolution. But in this author’s view, an effective banking union could be limited to the 30-40 banks with the potential to spread contagion across borders, leaving the other 8250ish banks alone.
How might this play in Germany? The new BaFin President, Dr Elke König, said: “Let us be clear about one thing: there is no alternative to the European System of Financial Supervisors. Europe is a common economic area for which we will in due course need a common rule book.”
Fannie Mae and Freddie Mac: Turning the American Dream into a Nightmare: Oonagh McDonald’s new book gives a fascinating insight into the machinations that converted a US political ideology into global financial turmoil as almost half of the outstanding US mortgages were subprime by 2008. Where were the regulators? Where was the political oversight? European politicians should study this cautionary tale as they tinker with the banking system for social purposes.