The latest rift is over bank resolution. While the legal groundwork is in place for common supervision, Germany is making plain that the next step – creating a single, powerful authority to shut down banks, with access to common funds – is premature and unwise. At stake is the depth and pace of financial convergence in the eurozone – a reform drive aimed at untethering troubled banks from their cash-strapped sovereigns and eventually unblocking credit flows to the distressed economies of southern Europe.
The rift is creating two paths for the incomplete banking union project: a German vision of gradual integration where, for now, nations remain in charge and liable for costs; versus rapid centralisation to create a heavyweight bank executioner to complement ECB-led supervision.
Frankfurt’s frustrations are showing. Over the past fortnight all six ECB executive board members have publicly backed the rapid creation of a resolution authority – a vision they know to be at odds with Berlin. This emphasis on political reform comes as pressure builds on the ECB to act itself to tackle financial fragmentation and ease the south’s economic woes.
Mario Draghi, the ECB president, said the resolution reform must come “quickly”; Benoît Cœuré, ECB board member, likened the lack of a common resolution authority to wading across a river and stopping half way. France and Brussels concur. Pierre Moscovici, France’s finance minister, said last week: “We want a full banking union and we want it fast".
Berlin outlined its alternative in an informal paper: A network of national resolution authorities, rather than a central decision maker; coordination of national resolution funds, not a common pot; and the eurozone’s bailout fund acting as backstop principally for Member States, not banks. Without treaty change and fiscal union, the paper argues centralising resolution will cause “moral hazard” as national policies will still affect risks on banks’ balance sheets.
Time is against the reformers. There is a German election looming and effectively under a year of EU legislative time before European elections and a change of commission. One diplomat described the timetable as “fantasy”.
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