Germany’s Blessing to the European Banking Union

Written by | Wednesday, November 13th, 2013

Angela Merkel’s conservative party and the Social Democrats (SPD) have finally given their blessing on the creation of the European Banking Union. Germany’s main parties have decided that the newly created banking union would adhere to European finance ministers rather than the EU Commission. Finance ministers will now have the power to decide when to close down failing banks. Moreover, the two parties have also agreed that the budget of the European Stability Mechanism (ESM) cannot be directly used for bail-out purposes.
Although a number of legal issues must be addressed before the law on the banking union comes into force, the agreement should be signed by representatives of both parties this week so that Germany’s finance minister, Wolfgang Schaeuble, can meet with his fellow colleagues, finance ministers from other EU countries, with Berlin’s solid position on the union. The European Union intended to finalize the creation of the banking union by the end of this year, but Germany’s political instability following the September election cast shadows over whether this could be achieved. Thus, Berlin’s unified stance has been warmly welcomed by the EU institutions, and the negotiations on this issue are likely to be going full steam now.
Moreover, Michel Barnier, Brussels representative for the banking union, expressed his satisfaction with the fact that the union would not be tied to the EU Commission but rather to the body of the EU’s finance ministers. The European Central Bank also joined the discussion last Friday when it demanded that a single fund be created for covering cost of bank failures. The Single Resolution Mechanism (SRM) – the main pillar of the banking union – should serve as such a fund, and should also provide necessarily credibility to the system. The SRM is also hoped to fill the void between sovereign governments and failing banks, which has been the main issue since the onset of the euro sovereign crisis.

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