Banking union for an unfinished EMU

Abstract

This paper argues that a fully-fledged banking union is needed to stabilise the euro and to prevent a decade of high unemployment and low growth in the Vulnerable Euro Area Periphery Countries. What has been agreed by the European Council and the European Parliament in March 2014 is a step forward but remains insufficient. A further transfer of responsibilities to European institutions and sufficient risk sharing are essential to sever the doomed loop of banks and sovereigns because individual EU countries are too weak to address this challenge alone. Ideally, a treaty change is needed, but also the development of a second best solution that is based on the current treaty, while using its institutional and legal capacity to the full. However, a banking union is not enough, given that banks’ assets exceed the EU's GDP threefold. The banking industry needs restructuring so as to prevent systemic risks and the legislator needs to have the power to intervene efficiently when needed. Finally, the authors stress that any banking union should be open to future eurozone member states.

Footnotes

Hans Geeroms is a Research Associate at the Wilfried Martens Centre for European Studies, Professor of European Economic Policy at the College of Europe and Catholic University of Leuven, Brussels Campus and a guest lecturer at the Polish Diplomatic Academy. He is a former adviser on EU economic policy to Belgian Prime Ministers Leterme and Van Rompuy.

Pawel Karbownik is Deputy Director of the EU Economic Department of the Polish Ministry of Foreign Affairs, responsible for the European Council in the field of economic policy. He previously worked at the European Parliament in Brussels, and has also gained experience in the corporate world and as an academic.