The European Banking Union Is Not So United

On one side of the aisle is Germany, Europe’s top economy, which has had a heavy hand in supporting struggling countries through the crisis. German Finance Minister Wolfgang Schaeuble argues that the scope of power granted to the ECB in current versions of the banking reform scheme is simply too large.

In order to be an effective supervisor of a large, diverse, and complicated banking ecosystem, the ECB must maintain a certain distance. If the ECB is a micro-manager of every bank in the EU then its ability to make independently informed decisions is jeopardized if, for example, it has to negotiate the bailout of a bank in one of the member states. Schaeuble argues that the final decision on bailouts should not be left in the hands of the ECB.

On top of this is a logistical nightmare of management. As noted, there are 6,000 licensed banking institutions in Europe. Germany is arguing that the ECB should only have oversight over the major multinational and national players, and leave small regional banks alone.

France, also a European economic workhorse and often an ally of Germany in fiscal matters, disagrees. French finance minister Pierre Moscovici argues that if the architecture does not include every single bank, then authorities have failed to affect real change and Europe will be in much the same spot it was before.

Moscovici might fear that if only some of the banks are being supervised, the smaller, regional banks could enter “shadow” territory, free to provide the dubious financial services that the EU wants to avoid. France is also in favor of trying to complete the plan by the end of the year, where Germany argues that rushing the job will produce a solution that is to no one’s satisfaction.

A solution to the growing disagreement will be sought at a special meeting held in Brussels on December 13.

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