Until euro area leaders overcome German doubts, ECB concerns, and turf battles everywhere, Spain will remain on the hook for a bailout of its banks of as much as €100 billion. Policy-makers want to protect taxpayers from losses so potentially big they risk bankrupting governments, as happened in Ireland and Iceland. Officials are working against a self-imposed September deadline to thrash out plans that would hand oversight of lenders to the ECB, as the first step in a campaign to break a cycle of banks and sovereigns fuelling each others’ debt woes.
Viviane Reding, the EU’s justice-policy chief, said the scandal engulfing Libor and other interbank lending rates shows why centralised banking supervision is needed as soon as possible. The ECB needs greater powers to end the “very cosy relationships that exist today between some national supervisors and banks in their home country”, Reding told reporters at a briefing in Brussels today. “We cannot continue with this casino mentality.”
European Union taxpayers have provided €4.5 trillion in capital injections, guarantees and other forms of support to their lenders since the 2008 collapse of Lehman Brothers Holding Inc, contributing to the weakening of public finances. In drafting the measures, the European Commission is navigating demands from the ECB that the plans mustn’t meddle with its independence, and competing calls from lawmakers that with greater power should come greater central bank accountability. At the same time, the ECB is being prodded to take on a bigger role because of its duty to support the euro.
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