The European Commission will present its blueprint for a body to refloat or fold troubled banks, largely in the euro zone. As we’ve said ad nauseam, there is no chance of a great leap forward on this front ahead of Germany’s September elections. The question is whether Berlin’s line softens thereafter.
Brussels will suggest a cross-border body able to overrule national authorities. Germany is opposed and says that would require treaty change which could take many years. Beyond that the EU’s executive appears to have pulled its punches somewhat.
The new authority will have to wait years before it has a fund to pay for the costs of any bank closures since the plan foresees a levy on banks to build a war chest of up to 70 billion euros which is expected to take a decade, leaving the agency dependent on national schemes for years.
The EU’s executive will also not call for the euro zone’s rescue fund, the European Stability Mechanism, to act as a backstop in the meantime, undermining a central goal of banking union – to break the “doom loop” where indebted governments have been forced to bail out stricken banks which in turn have loaded up on that government’s debt, pushing both into a downward spiral.
Key ECB policymaker Joerg Asmussen said yesterday that a “resolution fund” should be financed by levies on the whole banking sector and with a European government backstop, delinked from national budgets. Germany fears it will be left with the bill for failed banks in other euro zone states if that happens.