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We need to stay on course and continue to create the right incentives to ensure that all countries – and Europe as a whole – keep working to resolve their own problems. To achieve sustainable growth we cannot and must not rely on the assistance of central banks. In general, monetary policy does not replace the structural efforts that are needed to maintain or regain competitiveness. And especially in the existing structure of the eurozone, where only monetary policy is on the European level, whereas responsibility for fiscal and economic policy remains mainly on the national level, we need to avoid any wrong incentives to avoid moral hazard.
By the way, this is the same with the mutualisation of national debts, the so-called eurobonds. In the given structure of the eurozone, eurobonds would immediately lead to a weakening of the determination to pursue structural and fiscal reforms on the part of some member states. And therefore we will not do that. Instead, we need to make sure that our economy remains competitive on an international level…
Our aim is to ensure that future banking crises do not overwhelm whole countries or place the entire monetary union at risk. And we want to realign incentives so that competition and normal market processes can function efficiently, without creating systemic risk and transferring it to the taxpayer. To this end, we need to establish both the rules and the institutional framework that will help us achieve our goal.
In future, an ailing bank will be resolved effectively and shareholders and creditors will be the first to bear any losses, followed by the banking sector as a whole. At the same time, taxpayers will be protected as much as possible. Therefore the ongoing trialogue negotiations will not see any weakening of agreed bail-in rules, to be very clear.
The European Central Bank will start operating as Europe’s single banking supervisor in the fourth quarter of 2014. In this context, there are two things that are important to me:
First of all, the clear separation of monetary policy and banking supervision in day-to-day operations. What was achieved last year is a big step in the right direction. But it still has some limitations. In order to set up a new, independent European supervisory authority, however, we would have to change the European treaties. For this we need unanimity. It is not easy to get. And it needs time.
Secondly, direct ECB supervision should be limited to significant banks in the participating Member States, while other banks remain under the supervision of national authorities. This not only reflects the principle of subsidiarity, but also takes into account the different situations in European Member States.
The next step is a Single Resolution Mechanism. We are currently conducting trialogue negotiations with the European Parliament and talks about an intergovernmental agreement on the European resolution fund so that we can launch this important project in time for the European elections in May.
If the mechanism takes the form that the European finance ministers agreed on in December, its foundations will be legally sound. You can’t achieve financial stability if you have legal uncertainty. Once again we face the problem of a treaty change, but until we achieve this we have to rely on the existing treaty. The construct is viable because it combines Article 114 of the Treaty on the Functioning of the European Union and an intergovernmental agreement. This allows for levies to be collected, transferred and used for resolution measures on the national level.
The Single Resolution Mechanism also needs efficient decision-making procedures. The resolution of banks must not be delayed by national interests or conflicts. That is why we want resolution decisions to be taken solely by the resolution body to the maximum extent that this is legally possible. We have to keep in mind the Meroni judgement in the European Court of Justice. Therefore there are some limitations. But within these borders, we want the maximum extent for the resolution body itself.
The goal should not be for the construction to look simple. It should be to make the resolution board as strong and independent as possible, because that is where the expertise is...
Keeping the Member States involved in the SRM as well as the ESM context is crucial for several reasons. We don’t want to shift responsibility for the legacy assets of banks in one country to taxpayers in another country. That is why gradual mutualisation and continued responsibility on the part of the member states is a fair compromise.
Furthermore, many policy areas will remain under national responsibility, such as tax law or company law. Any solution releasing Member States from their responsibility would create the wrong incentives and would weaken the determination of Member States to make sure that the necessary structural reforms are not only decided, but also implemented…
Some countries may not come on board immediately, but they might join later. It is important that we develop and agree on regulation internationally. But as with any approach that aims at reaching international consensus, there is the risk that those least willing to make reforms could ultimately set the pace. By the way, if we had followed that kind of logic as we worked to build our democracies, or in our efforts to enforce human rights, the world would be in a much poorer state. We need to do what we believe is right and convince each other to take a similar route.