The completion of the banking union

What are the challenges?

The establishment of the banking union was a reaction to the financial crisis in 2008 and to the related sovereign debt crisis. This plan to make Europe more crisis resilient is based on three pillars. The pillar of the Single Supervisory Mechanism (SSM) and the pillar of the Single Resolution Mechanism (SRM) have so far been completed. Only the third pillar of the European deposit insurance scheme (EDIS) is missing for the completion of the banking union. EDIS is at the same time the biggest point of disagreement in the negotiations of the completion of the banking union

Many expected that the summit in June 2018 would bring important progress for the reformation of the Eurozone. However, the relevant ministers did not come to an agreement and further negotiations were postponed to December 2018. The final declaration of the summit contained only a call to prepare a roadmap for the launch of the negotiations for EDIS without an exact date:

A lot of hopes were put in the declaration of Meseberg of French President Emmanuel Marcon and German Chancellor Angela Merkel. This declaration set out a Franco-German reform agenda, which contains an agreement to start political negotiation on EDIS after the June-summit.

The main problem of the implementation is that there are the two different points of view towards EDIS. These primarily relate to the timing of its introduction. On one hand are the states, which argue for a risk reduction and thus a later implementation of EDIS, and on the other hand, there is a group of countries that advocates for a communitisation of risks, which implies a fast implementation of EDIS.

The biggest advocate for a risk reduction before the introduction of EDIS is Germany. The German government insists that, e. g. the banks of Greece, Cyprus and Italy, have to improve their balances and reduce their debts before the risk sharing through the Common deposit insurance scheme can happen. Germany is supported by a small group of states, which is under the leadership of the Netherlands. This group includes Belgium, Luxemburg, Austria, Finland, Estonia, Latvia and Lithuania and the non-euro states Sweden and Denmark. In the opinion of these states, the conditions for a further development and thus for the completion of the banking union have not yet been fulfilled.

France on the other side focuses on the communitisation of risks. The position in Paris is that EDIS is ready for a decision. Germany’s security thinking and demands for a zero risk approach are unrealistic. France does not want to wait any longer with the implementation of EDIS. The opinion in Paris is that a decision on the roadmap has to be made in order to be able to progress the communitisation of risks step by step. France is supported by the Commission and the European Central Bank. They also call for a quick finalisation of the banking union. However, they also emphasised not to forget about the risk reduction in the balances of the banks.

The Austrian Presidency will be playing a huge role in the completion of the banking union. Nevertheless it is still a long way to the finalisation of the banking union.