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The pieces are now falling into place for an unambitious Summit – but that can hardly be a surprise given the deep freeze on European political activity pending the German elections in September. However, that freeze should not stop the assembly of some critical components of Banking Union (BU). It was only agreed a year ago and several building blocks are just coming into place. But the impatience reflects the long-standing EU governance problem: markets want everything agreed and implemented swiftly – understandably. The politicians – correctly – feel the need to proceed in line with their citizens' ability to come to grips emotionally with the new necessities and for measures to be taken which are legally robust in a system governed by the 'rule of law'. A frustrating dichotomy at times!
However, the Merkel/Hollande document of 30 May was welcome in three respects – first, that Germany and France seem to be back on speaking terms. Secondly, that they argued powerfully for serious progress on Banking Union and held out the carrot of finalising the 'operational criteria' for direct banking recapitalisation once agreements are reached. Thirdly, they wish to push 'further' forward on economic coordination to strengthen competitiveness. When will this coordination have developed to the point it is generally called economic governance?
Perhaps the lack of apparent ambition for this European Council could open the way to some agreements on details – such as the Recovery and Resolution Directive (RRD) and the use of the ESM to backstop non-euro area banks supervised by the SSM – that would turn out to have profound results fairly quickly.
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