July 16, 2012
Different messages are emerging as to how quickly the proposed banking union can be established, with Germany rightly emphasising that this is a complex and hence medium-term project. There are, however, suggestions that the urge to be seen to be doing something will result in quick fixes being sought. They would include (i) selling slightly modified versions of the long-winded legislative proposals on reform of deposit guarantee schemes and resolution regimes as new, breakthrough initiatives and (ii) using Art. 127(6) TFEU to transfer limited supervisory powers to the ECB, e.g. by mandating it to monitor capital cushions of the largest institutions.
It appears that the EU will, in the end, indeed succumb to the temptation of quick fixes rather than devising well-thought-out designs. This is deplorable: banking union is needed, but only if there is a consistent institutional framework that preserves the single financial market, financial stability and the euro. The EU has wasted decades trying to get financial supervision right; there is no need to rush now. Specifically, member states should think twice before plumping for the option of endowing the ECB with even more powers, simply because the Treaty offers that option and every other avenue is more complicated. Not only would the ECB run the risk of potentially competing mandates and reputational damage, but as central bank, supervisor, and de facto macro prudential supervisor, the ECB would be dealer, policeman and judge all in one. This is undesirable, particularly with an eye on the challenge of establishing sufficient democratic accountability for an independent central bank exercising supervisory powers.
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