Speaking at the Chamber of Commerce in the Luxembourg capital, Mersch called the Banking Union project "the most significant step forward in the integration of European financial markets since 1999. It is an indispensable complement to the single currency and should contribute to addressing the adverse feedback loop between banks, public finances and macroeconomic conditions", he said.
In other comments, Mersch asserted that "a permanent Eurogroup President as the nucleus for a euro area Finance Ministry with proper analytical capacity and more autonomous decision-making powers could be a step in the right direction".
"There are a number of areas where further progress is required in order to complete the Single Market for financial services. This would benefit all 28 Member States but may be even more important for the euro area Member States.
Two major legislative proposals which are highly symbolic for citizens as an EU response to the crisis are now on the table and need to be carefully analysed against their potential benefits and drawbacks:
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The Commission’s proposal on structural measures for banks. A few years after the start of the crisis, assessing the banking sector’s structure and reflecting on how to make banks safer is essential. A coherent approach would contribute to reducing the potential fragmentation caused by different national structural regulations.
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In a different domain, the ECB shares only some of the objectives that have motivated the proposal for a Financial Transaction Tax (FTT), for example further integration of the single financial market and increased financial stability.
The crisis has also spurred discussions on how to better bring the financial sector back to its core mandate: being at the service of the real economy. By assisting banks’ ability to fund and distribute risk the securitisation of SME loans could contribute to connect the financing needs of SMEs with the funds of investors who would otherwise not invest in those SMEs. Looking forward, at least three steps are necessary:
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More work should be done to distinguish ‘high quality’ segment of the ABS market and make them more robust to market stress, thereby providing banks with a more resilient form of funding.
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Available data and general standards applied to all ABS should be further improved.
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The regulatory treatment of securitisation should be revised to better reflect the risk-mitigating features of high quality securitisation and to address current inconsistencies in the legislation.
More generally – going beyond the notion of Banking Union, we should work towards creating an integrated financial market union that supports the real economy. This requires in particular two elements: developing cross-border capital markets offering a real alternative to banks’ financing; and ensuring that banks are able to operate smoothly across borders and to undergo mergers and acquisitions without any national bias.
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In the longer term, it seems appropriate to reflect on the limits of the current framework in which we are evolving. A Treaty change could enlarge our horizon of possibilities:
As regards fiscal union, the Four Presidents’ Report mentioned the need for true oversight over national budgets. The consequences of misguided fiscal policies in a monetary union are too severe to remain self-policed.
As regards economic union, the euro area needs to achieve a higher degree of economic convergence, in terms of competitiveness, growth potential and flexibility. This is essential for each individual country and for the smooth functioning of the euro area as a whole. The framework for policy coordination should be made more stringent and enforceable at European level.
Progress in these fields would require commensurate steps towards political union. In view of the multiple geometries implied by the EU integration process, the need for an enhanced political dimension is even more pressing for the euro area. Sharing a single currency implies a substantial sharing of sovereignty and economic integration, going well beyond the requirements of a single market."
Full speech
Further reporting by MNI © MNI News
© ECB - European Central Bank
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