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It is more useful to think of the banking union as a long-term political project than as a tool of crisis resolution. Depending on your view, it can be monumental or irrelevant.
Angela Merkel, German chancellor, was right when she said you could not have the SSM up and running by January 2013. A complete banking union is hugely complex and takes time. Important aspects of the project will require a change in the European treaties. Britain and others with no ambitions to join the eurozone will not sign up. It would be wrong to think of banking union as an extension of the single market. It is best to think of it as part of the hard-wiring of a monetary union.
As time goes on, the eurozone will usurp the EU. It will have its own banking union, its own budget, its own political union and, ultimately, its own single market – something that is not legally possible now. The fundamental reason why Britain is now headed for a probable exit, or at least for marginalisation, is not a eurosceptic prime minister but the decision taken 15 years ago not to join the euro.
The banking union and its various cousins constitute the biggest act of political integration in Europe since the creation of the European Economic Community 55 years ago. I believe that they will be even bigger than the euro itself because they are a significant encroachment on national sovereignty on several levels.
While the combination of banking, fiscal and economic union, if done properly, would create a minimally sufficient institutional set-up for a sustainable monetary union, there is a big snag: the monetary union might blow up well before the new mechanisms kick in. The banking union, as currently constructed, will not help us in the current crisis.
I am now persuaded to accept that the eurozone’s political establishment is ready to build the necessary institutions for a monetary union. That was not the case one year ago. What is still missing is the political will to resolve the actual crisis.
The ECB’s programme of Outright Monetary Transactions is important, but cannot bridge this gap. Without an acceptance of default, and thus transfers, this is ultimately not possible. My conclusion is that whatever risk one might attach to a breakdown of the eurozone has not fundamentally changed.
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