The full Ecofin of 28 EU finance ministers meets after Monday’s Eurogroup meeting of euro zone representatives didn’t seem to get far in unpicking the Gordian Knot that is banking union. Ireland’s Michael Noonan talked of “wide differences”.
The ministers are seeking to create an agency to close euro zone banks and a fund to pay for the clean-up – completing a new system to police banks and prevent a repeat of the bloc’s debt crisis.
But a German official rejected a euro zone proposal unearthed by Reuters that would allow the euro zone’s bailout fund, the European Stability Fund, to lend and help finance the cost of any future bank rescues or wind-ups. Berlin does not want to end up footing the bill for failures elsewhere and is still constrained because a coalition deal to form the next government has yet to win final approval from the Social Democrats.
Furthermore, most euro zone countries are happy to let the European Commission, the EU executive, rule on restructuring or closing banks but Germany wants the decision to be taken by the EU’s 28 finance ministers, where it holds more sway.
Unless Berlin moves, what finally results may have precious little common backstopping of the financial system and if the costs continue to fall on national governments, the “doom loop” of weak banks dragging down weak sovereigns and vice versa will be unbroken.