EU in bid to avert bank crisis

LUXEMBOURG. – EU finance ministers will try again this week to resolve deep differences over how to supervise, and if necessary close, failing banks before they can plunge the economy into crisis. Ireland was among the worst affected by the collapse of its banks but over the weekend announced it would exit its three-year, 85-billion-euro bailout programme on schedule in December.

The Irish news, plus the fact that further aid for twice-bailed out Greece is not pressing, highlights how far the 17-nation eurozone has come since the dark days of 2009-10.

Now the spotlight and the controversy is on what comes next.
At the height of the global financial meltdown, ambitious plans to ensure that the taxpayer would no longer have to foot the bill for bailing out overextended banks made sense, along with much tighter economic policy coordination adopted by EU governments.

But as the pressure has eased and the European economy stabilised, national concerns have resurfaced, making implementation of the mooted “Banking Union” ever more difficult.

The 17-eurozone ministers were due to meet yesterday in Luxembourg, followed by talks today with their 11 non-euro colleagues hoping for progress on a hugely complex issue surrounded by political sensitivities.

In a research note entitled, “EU Banking Union: Right Idea, Poor Execution”, Deutsche Bank said the plan “has a sound economic rationale and would, if it were implemented in a consistent fashion, substantially strengthen financial stability in Europe and in the euro area in particular.”

The problem, however, is that it suffers “from two very fundamental contradictions”.
“On the one hand, there is a schizophrenic attitude of member states with regard to the necessary degree of supra-nationality to preserve a financially stable internal market for financial services.

“On the other, there are the contrasting expectations and motives of member states with regard to Banking Union,” it said.
Driven by the debt crisis, the eurozone has already agreed a Single Supervisory Mechanism. – AFP.