FacebookTwitterGoogle+RedditEmail

Europe’s Banking Union: the Big Fix?

Last month, MEPs finally signed off on European banking union. This, we are told, is the big fix to the out of control banking system that caused the 2008 economic meltdown that has rocked Europe ever since.

We are told that whereas in the United States regulators and the central bank took swift acted to stem bank problems, the patchwork of national interests across Europe prevented countries from forging a united front to do the same. But this is all to change with a ‘union’ and the clean-up of banks’ books.

A new European authority will have the power to wind up or restructure failing banks – the so-called Single Resolution Mechanism (SRM). And a common fund, financed by bank levies, will be established so that emergency cash can be injected into failing banks. The scheme introduces new rules making it easier to make bondholders and even large depositors of failing banks pick up losses. There will also be an obligation for countries to ensure that schemes are in place to guarantee the first 100,000 euros (82,496.41 pounds) in any savings account.

“The banking union completes the economic and monetary union, puts an end to the era of massive bail-outs and ensures taxpayers will no longer foot the bill when banks face difficulties,” Michel Barnier the European official in charge of regulation stated.

A shiny new future, in short. Should we believe him? First of all, just check out the language of Martin Schulz, the European Parliament’s president. He said: “From now on, taxpayers will not systematically foot the bill for bank losses.” ‘Systematically’ is the word to focus on. As Reuters writes, ‘the conundrum of what to do if a very large bank wobbles remains.’

The reality is that the common fund of 55 billion euros is tiny. Compare that to the balance sheet of France’s ‘too-big-to-fail’ BNP Paribas of two trillion euros. And the reality is we don’t know the health of Europe’s banks. So called ‘stress tests’ are only going to be finalised in October and one key indicator –  bad or non-performing loans not covered by capital  – makes up about a third of the equity across the 20 banks. In the cases of three banks bad debts not provided for exceeded their total equity. In January, one broker report showed 27 of the ECB’s 128 banks failing a simulated stress test, although it is the case that banks set aside tens of billions of euros last year, through raising cash or hoarding profits.

As Raquel Garrido of France’s Front de Gauche, puts it, the common fund is ‘hoax’. Its creation, as with the other elements of banking union, were all done in a mad rush – a perfect excuse to dodge a proper democratic debate. It was absolutely essential to get it done and dusted before the European elections, its proponents argued. However, it turns out that this crucial fund won’t be fully financed for eight years to come. That will be 14 years after the financial crash.

Then there’s the matter that it will be the ECB that will directly oversee the banking union, supervising the eurozone’s biggest banks, with powers to overrule national authorities. That’s the central bank headed by Mario Draghi, the former employee of Goldman Sachs, the investment bank whose chequered history includes a bit of creative accounting to help Greece get into the Euro (and in the process saddling the country with a few extra billion euros of debt).

Handing over such powers to the ECB also means governments relinquishing to unelected officials in Frankfurt yet more control over their financial sector, over the credit needed to keep the wheels of their economies going and people in jobs. What Reuters calls ‘political meddling’ over decisions on shutting banks. This will be particularly damaging to southern European countries. Their weaker banking systems face being taken over by France and Germany, and its financial giants, Deutsche Bank or BNP Paribas, entrenching their position as colonies of the richer north.

And who will be the winners in all this?

Well the same lot that we discover benefited from as much as $300 billion in implicit public subsidies four years after the global financial crisis because governments’ made it quite clear to investors that they would not let them fail, the IMF has recently estimated. That’s right, we are talking about the Eurozone’s big banks, the ones that since 2008 have also enjoyed one billion euros in free money (1% interest rate loans) from the European Central Bank under its Long Term Financing Operation and 4.6 billion euros in state aid.

Corporate Europe Observatory explains:

“[Banking Union] is a guarantee that the single market for financial services is not only protected, but deepened. The adopted rules on banks provide a higher level of harmonisation, making it difficult for member states to impose tougher demands on their banks. To big banks, such a harmonised set of rules makes it easier for them to expand, as they offer predictability.

“The battle of the banking union was never really an open political battle fought in public. The issue is probably too complicated for most. Consequently, the lobbyists of the banks have had a relatively open field in the process. Under the banner of ‘strengthening the single market’, they have seen the banking union as an opportunity to enhance their opportunities, while keeping the concessions to a minimum. In that, they’ve been successful, and can look forward to an era where they can continue with the same behaviour on financial markets, and in the end have the authorities clear up their mess.”

And the losers?

As MEP Philippe Lamberts of the Green Party puts it: “Too big to fail banks are simply too dangerous to exist. As long as systemic financial institutions are allowed to exist in their current shape, taxpayers will remain exposed to paying for the follies of a runaway financial industry.”

But EU governments and the Commission have long dodged calls to separate their investment activities (speculative) from retail (useful, traditional lending to main street). A heavily watered down plan to separate them out will only be put on the table for discussion next year and assuming it is approved, will be implemented in 2017, nine years after the crash and all those promises to crack down on the bankster-speculators. The big banks “vast scale” is “blamed for fuelling risky trading and growth in the multi-trillion dollar derivatives market” but the proposed new rules “signal that European policymakers have largely backed down in the face of banking resistance,” Reuters reports.

So should we believe Monsieur Barnier? On one thing which will be most dear to his heart, as a European commissioner, we can take him at his word. Banking union is a further step down the road to EU integration and a power grab by Brussels and Frankfurt. The question is, will the people benefit? You know the answer to that one.

Tom Gill blogs at www.revolting-europe.com

More articles by:

Tom Gill edits Revolting Europe.

July 19, 2018
Rajai R. Masri
The West’s Potential Symbiotic Contributions to Freeing a Closed Muslim Mind
Jennifer Matsui
The Blue Pill Presidency
Ryan LaMothe
The Moral and Spiritual Bankruptcy of White Evangelicals
Paul Tritschler
Negative Capability: a Force for Change?
Patrick Bond
State of the BRICS Class Struggle: ‘Social Dialogue’ Reform Frustrations
Rev. William Alberts
A Well-Kept United Methodist Church Secret
Raouf Halaby
Joseph Harsch, Robert Fisk, Franklin Lamb: Three of the Very Best
George Ochenski
He Speaks From Experience: Max Baucus on “Squandered Leadership”
Ted Rall
Right Now, It Looks Like Trump Will Win in 2020
David Swanson
The Intelligence Community Is Neither
Andrew Moss
Chaos or Community in Immigration Policy
Kim Scipes
Where Do We Go From Here? How Do We Get There?
July 18, 2018
Bruce E. Levine
Politics and Psychiatry: the Cost of the Trauma Cover-Up
Frank Stricker
The Crummy Good Economy and the New Serfdom
Linda Ford
Red Fawn Fallis and the Felony of Being Attacked by Cops
David Mattson
Entrusting Grizzlies to a Basket of Deplorables?
Stephen F. Eisenman
Want Gun Control? Arm the Left (It Worked Before)
CJ Hopkins
Trump’s Treasonous Traitor Summit or: How Liberals Learned to Stop Worrying and Love the New McCarthyism
Patrick Bond
State of the BRICS Class Struggle: Repression, Austerity and Worker Militancy
Dan Corjescu
The USA and Russia: Two Sides of the Same Criminal Corporate Coin
The Hudson Report
How Argentina Got the Biggest Loan in the History of the IMF
Kenn Orphan
You Call This Treason?
Max Parry
Ukraine’s Anti-Roma Pogroms Ignored as Russia is Blamed for Global Far Right Resurgence
Ed Meek
Acts of Resistance
July 17, 2018
Conn Hallinan
Trump & The Big Bad Bugs
Robert Hunziker
Trump Kills Science, Nature Strikes Back
John Grant
The Politics of Cruelty
Kenneth Surin
Calculated Buffoonery: Trump in the UK
Binoy Kampmark
Helsinki Theatrics: Trump Meets Putin
Patrick Bond
BRICS From Above, Seen Critically From Below
Jim Kavanagh
Fighting Fake Stories: The New Yorker, Israel and Obama
Daniel Falcone
Chomsky on the Trump NATO Ruse
W. T. Whitney
Oil Underground in Neuquén, Argentina – and a New US Military Base There
Doug Rawlings
Ken Burns’ “The Vietnam War” was Nominated for an Emmy, Does It Deserve It?
Rajan Menon
The United States of Inequality
Thomas Knapp
Have Mueller and Rosenstein Finally Gone Too Far?
Cesar Chelala
An Insatiable Salesman
Dean Baker
Truth, Trump and the Washington Post
Mel Gurtov
Human Rights Trumped
Binoy Kampmark
Putin’s Football Gambit: How the World Cup Paid Off
July 16, 2018
Sheldon Richman
Trump Turns to Gaza as Middle East Deal of the Century Collapses
Charles Pierson
Kirstjen Nielsen Just Wants to Protect You
Brett Wilkins
The Lydda Death March and the Israeli State of Denial
Patrick Cockburn
Trump Knows That the US Can Exercise More Power in a UK Weakened by Brexit
Robert Fisk
The Fisherman of Sarajevo Told Tales Past Wars and Wars to Come
FacebookTwitterGoogle+RedditEmail