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To revive the financing of the real economy we also – and perhaps most importantly – need the Banking Union. To be sure, the Banking Union is a historic project of the European Union whose importance will be on a par with the single market. So it is good to be cautious. But we must not take too long over creating the Banking Union, because in the long term we need it to protect our common currency and to be able to continue to benefit from a well-functioning common market. And in the short term we need it as a solution to the crisis:
We must be honest: this will not be easy. There are still many unresolved problems - and I am thinking not so much of legal as of political objections. There are also some structural difficulties which still await a solution.
The Banking Union will cost money. But doing nothing will cost more. Every day the crisis continues, the cost of resolving it rises. Every day the banking crisis goes on, the banks tighten the money supply for investments a bit more, economic recovery is further delayed, states are deprived of the chance to consolidate their budgets, and employment figures go on rising.
There is currently one point we particularly need to address: an orderly framework for rescuing insolvent banks, and a uniform mechanism for bank resolution. This is a fundamental pillar of the Banking Union. The European Parliament supports the Commission proposal, which is heading in the right direction. It is right and proper that owners, creditors and major investors should be liable before the taxpayer has to step in. The basic idea is that banks should bail out banks. To that end a resolution fund should be set up, which European banks pay into as a single insurance system. This would separate bank bailouts from their home countries’ budgets as far as possible, thus finally severing the baneful link between bank debt and sovereign debt.
Ailing banks should no longer be able to pull other financial institutes down with them, plunging states into economic difficulties and forcing taxpayers to foot the bill. That is the lesson we have learned from the financial crisis.
You have agreed on the principle of a European supervisory authority and a European resolution mechanism. At the moment we are discussing the concrete implementation of cascading liability. We note that the ministers in the Council are currently introducing further derogations for which, once again, in the first instance the taxpayer would be liable. My colleagues have informed me that they are strictly monitoring that the basic principle of cascading liability is observed.
However, now we are faced with the practical problem that it will take some years before a resolution fund has been built up and becomes operational. So we urgently need a transitional solution. Otherwise the ECB, which is due next year to take over the supervision of financial institutions in the eurozone from the national regulatory authorities, will have the practical problem that, while it can carry out stress tests and audit balance sheets, without a European safety net there is the risk of the financial markets becoming destabilised. There will only be a credible and neutral bank supervision if at the same time a functioning rescue fund for ailing banks is ready at hand. The European Stability Mechanism (ESM), designed as a euro bailout fund, could serve as a temporary solution. We hope that, although this is an issue where unanimity is required, rapid and neutral decisions can be taken.
As co-legislator the European Parliament is prepared to work to achieve an agreement with the Council in the coming months. If no good agreement is reached by the end of this electoral period, we risk losing everything we have gained so far.