A day after she was sworn in for a third term and a day before she attends an EU summit in Brussels, Chancellor Angela Merkel delivers a speech in the Bundestag lower house. She will then head to Paris in the evening for a meeting with French President Francois Hollande. That bilateral could be the moment that the seal is set on banking union, in time for the Thursday/Friday EU leaders summit.
In parallel, the bloc’s 28 finance ministers will meet in Brussels to try and finalise a common position on the detail. “For the acceptance of the euro on financial markets, the banking union is very important,” Merkel said on Tuesday.
For the markets, it will be impossible to look beyond today’s Federal Reserve policy decision which might, or might not, start the process of slowing the pace of money-printing which has been churning out $85 billion a month. But banking union is hugely important too.
Euro zone finance ministers made progress overnight, essentially agreeing the blueprint Reuters reported exclusively over the weekend.
Banks will pay into funds to cope with the closure of failed lenders, to the tune of roughly 55 billion euros over 10 years which will eventually be incorporated into a Single Resolution Fund. Until then, if there is not enough money, governments will be able to impose more levies on banks. If that does not suffice, they would help with public money.
If a government could not foot the bill, it could borrow from the euro zone’s ESM bailout fund. All that means the doom loop comprising weak banks and sovereigns will not be comprehensively broken for several years yet. In 2025, when the common fund is fully stocked, it could borrow on the markets itself to generate more funds. That’s a long time away.