EU: Why Europeans should think Big and think Bold "instead of harnessed by outdated capitalism" by Yanis Varoufakis

After the United States had lost its surpluses, some time in the late 1960s, the system of fixed exchange rates and highly regulated capital movements, which had nurtured capitalism’s Golden Age, was condemned. Its inevitable collapse could not but push the dollar down, release the bankers from their thirty-year-old restraints, and wind back rights and services that labour had wrestled from capital since the war.

In 2008, the pyramids of private money, that Wall Street and the City of London had built on the back of this constant tsunami of capital, crashed and burned. At first, continental Europeans smiled, allowing themselves an ‘I told you so’ moment, directed at the Anglo-saxons who had spent a decade or two sneering at the Continent’s antiquated commitment to manufacturing. Alas, that moment proved very brief. Soon, they realised that their own banks were replete with toxic assets and that their bankers had been allowed to run debts (or ‘leverage’) twice as great as those in the Anglo-sphere. Put simply, Mrs. Thatcher bubble had been surreptitiously exported to Frankfurt, Paris, Rome, Madrid, Brussels etc. As had the ‘model’ of building up competitiveness by squeezing wages until the local economies, behind the glitzy suburbs and the globalised jet set, were in a permanent state of slow-burning recession.

Post-2008, while the United States and Britain sought to bailout the bankers with a combination of taxpayers’ money and quantitative easing that aggressively sought to re-inflated the deflated toxic assets, Europe was making a meal of the same project. Having rid themselves of their central banks, the Eurozone’s politicians did their utmost to shift all the stressed bank assets onto the shoulders of the weakest amongst the taxpayers, thus causing a horrid recession and putting the European Union on a path leading toward certain disintegration.

Nevertheless, and despite the significant differences between Britain and the Eurozone, the broad picture remains the same: The establishment responded to the financial crisis by inflating bank and real estate assets (that were best left alone) and squeezing the majority of the population with soul and income sapping austerity. In short, the Thatcher model on steroids.

Growth is not the issue. The Left understands that there are many things whose growth must be stumped: toxic waste, toxic derivatives, ponzi finance, coal production, consumption that leaves the consumer unfulfilled and the planet worse for ware, etc. No, the issue is eclectic growth in the technologies and goods that contribute to a more successful life on a sustainable planet. The Left has always known that markets are terrible at providing these technologies and goods sustainably, and in a manner that sets prices at a level reflecting their value to humanity. What the Left was never very good at was in the conversion of that gut feeling into workable policy that the beneficiaries of this policy (i.e. the vast majority) would back.

A spectre is haunting Europe. It is the spectre of Bankruptocracy. A curious regime of rule by the bankrupt banks. A remarkable political arrangement in which the greatest extractive power (vis-à-vis other people’s income and achievements) lies in the hands of the bankers in control of the financial institutions with the largest ‘black holes’ on their asset books. It is a regime that quick-marches the majority of innocents into the trap of austerity-driven hardship that serves the guilty few, while Parliament and civil society are held at ransom. While 2008 was meant to raise ‘regulatory standards,’ we now know that nothing of substance has been done to reform finance.

This is not to say that we are anywhere near ready to replace capitalism. Indeed, realism commands us to recognise that, if anything, Bankruptocracy is well and truly in command of the European continent and the only political forces on the march are those of the bigoted, ultra Right. The Left must not err again, as it did in the 1930s, thinking that capitalism’s great crisis will naturally lead to something better. It may very well bring about the most hideous dystopia. This is why it is of the essence to stabilise capitalism (through banking regulation, a link between central banks and public investment, and a wider social safety net) while struggling to revive democracy at the local, national and European levels. Our success in this limited but crucial goal is a prerequisite for forging a sustainable future in which most people are gainfully employed in innovative enterprises of which they are the sole shareholders.

Read more: Why Europeans should think Big and think Bold

European Commission: A decisive step towards the banking union

Eurogroup President Jeroen Dijsselbloem, who is chairing the intergovernmental conference on certain aspects of the single resolution fund, also participated in the negotiations.

"On behalf of the Presidency, I should like to warmly welcome today's agreement on this key element of Europe's banking union. I sincerely hope that it will open the way for approval by both Parliament and Council within the timeframe we have set on account of the forthcoming European elections," said Greek Minister for Finance Yannis Stournaras.

"The agreed text will now be submitted to the member states, and I hope that they will be able to support it", said the Minister.

The single resolution mechanism regulation will be a key element of Europe's future banking union. It will establish a single resolution board, which will have broad powers in cases of bank resolution, and a single resolution fund. 

The purpose of the mechanism is to ensure orderly resolution of failing banks while minimising impact on taxpayers and the real economy. In principle the resolution mechanism will apply to all banks in the euro area and in those EU countries that choose to participate.

"Together we have made a very important step in restoring confidence in banks as well as in the eurozone. And this at an unprecedented speed. With the banking union, risks will be pushed back to where they belong: to the ones that are taking the risks and benefit from the risks - the financial sector - and not to the tax payer, " said Eurogroup President J.Dijsselbloem.

Once the agreed text of the regulation is approved, the intergovernmental agreement on the functioning of the single resolution fund will be concluded too. 

The complete text of the regulation will be finalised in the coming days and submitted to the Permanent Representatives Committee for agreement. 

The Complete Statement by Minister Yannis Stournaras on the Single Resolution Mechanism

Deal on Banking Union Will Test Goal of United Europe - by Andrew Higgens and David Jolly

Battling to defend its credibility after a series of troubled bank failures across the Continent, the European Union hoisted a long banner on the outside wall of its Brussels headquarters last year to trumpet Europe’s march “toward a genuine economic and monetary union.”

It was hardly a rousing battle cry. But it did at least acknowledge that despite the adoption of a common currency, the euro, Europe still had much to do to achieve real economic and monetary integration, a central pillar of the so-called European project since the early 1990s.

Shortly before midnight on Wednesday, after months of meetings in Brussels that often dragged into the wee hours, European finance officials finally reached a deal on how to plug a gaping hole in Europe’s economic defenses, agreeing to a centralized system to shut down sickly banks in the 17 member nations that use the euro.

But as with many of Europe’s grand ambitions, the construction of what was conceived as a solid banking union has been crimped by the often contradictory interests of different countries. The exercise has yielded more of a muddle than a unifying mission. A banking union has often been described as Europe’s most ambitious project since its decision in 1992 to establish a common currency. But the effort to create one has highlighted how difficult it is to act ambitiously for a bloc that has grown from six to 28 member states.

It has no clear shared view on whether it is the nucleus of a future European state, a free-trade zone, or merely an intergovernmental organization that irons out disagreements between countries. Add to this the fact that the bloc’s leaders have starkly different views of what caused Europe’s financial crisis and the long economic malaise that followed, and “it is no wonder the E.U. finds it so hard to take decisions,” said Charles Grant, director of the Center for European Reform, a policy research group.

“You have a sick patient on the bed and doctors gathered around who cannot decide on the nature of the illness or the medicine required to cure the patient.

Read more: Deal on Banking Union Will Test Goal of United Europe - NYTimes.com

Europe & Growth Pact: A Child Of The Economy, An Orphan Of Politics

As we move towards the future, the situation is bleak. The decisions made at successive European summits do not seem likely to address the structural defects of the Eurozone. The disappointment with the Europe of today is that it deals with a constitutional problem as if it were merely an economic one. The fiction of the sustainability of Europe, a child of the economy, but an orphan of politics, continues to undermine European integration.

It is certainly true that the proposed banking union shows real progress. But only part of the union’s supervision has been defined, and it comes into force in 2014. Its other elements – the resolution of banking crises and deposit insurance – remain under national jurisdiction, and their European future is even more uncertain. There must be real solidarity, something which Europe lacks most of all.

We have the Growth Pact and the Treaty on Stability, Coordination, and Governance. To which future are they leading us?

As it was signed, the Growth Pact – investment projects financed primarily by existing structural funds and the European Investment Bank’s increased capital (10 billion Euros) – is not likely to transform activity in the Eurozone. We are talking about 120 billion Euros; even this is mobilising funds which have not yet been used, to enable the EIB to lend 60 billion Euros by leveraging its capital increase.

Whether or not a start has been made is a mystery. This is why the European recovery seems more symbolic than real, a remake of the addition (fiercely negotiated in 1997) of the words “and growth” to the Stability Pact. Because, at the moment, EU regulations and conditions for assistance to countries considered fragile have plunged these countries into depression and have delayed Eurozone recovery. Have we really helped Greece, given that its GDP is currently more than 20% lower than it was on the 1st January 2008?

It is difficult not to view the Growth Pact as the soothing balm applied to smooth the roughness of the “fiscal compact.” Therefore, we have a treaty which establishes the fiscal solitude of each of the Eurozone member states through a promise of greater solidarity if they show themselves to be capable of solving their own problems. It forces, or rather, it requires states to self-impose sanctions or risk facing penalties, to have fiscal rules that are found in no other democracy in the world. In fact, it aggravates the European democratic deficit, making member states even more federal, and, at the same time, even more the orphans of a federation.

Since the end of World War II, economists have been debating the question of whether to emphasise rules or discretion in economic policy. In the forties, Milton Friedman had already advocated adopting monetary rules and suggested enshrining balanced fiscal rules in the constitution. But it was the “revolution” of rational expectations and the neo-classical school which established in a “definitive” way the superiority of rules over choice. Much attention was given to this conclusion, which inspired monetary policy management in many countries. But no country gave up its fiscal sovereignty, or indeed its monetary sovereignty, since in all countries (except in Europe) central banks are accountable to national parliaments. The neo-classical school’s demonstration would only apply to a world without imbalance, where economic policy resembled Don Quixote’s fight.

But how was Europe, probably without knowing it, able to endorse such a doctrine?

The reason is that adopting this doctrine binds governments’ hands so strongly it prevents them from acting, even in circumstances like today where inaction is irresponsible. Social suffering worsens, unemployment soars, recession threatens the Eurozone and depression takes hold in many countries. Can we then do nothing to fight against these ills and against budget deficit reduction as the sole macroeconomic policy?

Read more: Europe & Growth Pact: A Child Of The Economy, An Orphan Of Politics

EU still wrangling over banking union

The European Union is still treading water on the thorny issue of a community-wide banking union. EU finance ministers, gathered once again in Brussels, aren't making any decisions; instead, they're just repeating well-worn positions that haven't change in months.

According to EU diplomats, that is the fault of the German government, which is unwilling to shift its ground while coalition negotiations over the next new government are still going on in Berlin.

But Germany's incumbent Finance Minister Wolfgang Schäuble, of Angela Merkel's conservative Christian Democratic Union, has another view: "The German government is fully capable of acting," he said, because all the parties in the country's future government agree on European policy.

EU still wrangling over banking union | Europe | DW.DE | 15.11.2013

Banking Union: EU leaders to set tight timetable on completing banking union

European leaders will confirmed  Friday the 24th an ambitious timetable for the completion of a banking union, Europe's biggest project since the euro, and set a December deadline for fleshing out the idea of rewards for structural reforms in the euro zone.

Policy-makers believe a banking union in the 18 countries that will share the euro from next year will help increase the flow of credit, boost growth and help prevent financial crises in the future.

Under the union, the European Central Bank will directly supervise the euro zone's 130 biggest banks from November 2014 and have the power to take over supervision of any of the smaller banks if needed.

Such a Single Supervision Mechanism is to be accompanied by a Single Resolution Mechanism (SRM) - a yet-to-be-created euro zone authority with its own fund that would decide how to wind down or restructure banks that are no longer viable.

Read more: EU leaders to set tight timetable on completing banking union | Reuters

European Unity ? - EU Summit Reveals a Paralyzed Continent

VEN ZE DREM VIL FINALI COM TRU ?

A review of the most recent EU-Summits by the German Magazine Der Spiegel  shows some disturbing developments whereby national interests seem to prevail over the common good.

"The haggling is in full swing at this hour -- North against South, rich countries against poor ones, German Chancellor Angela Merkel against French President François Hollande. They're stuck on a word, one that would normally have a beautiful, positive sound: common. The word "common" is dividing Europe. This is what it has come to in this night of hard-fought negotiations.

For more than six hours now, the leaders of the European Union have been meeting in Brussels to discuss the future. They are here to agree on a document, and according to item 12 of that paper, there is to be a "common backstop" for the new banking union, a sort of shared resolution fund for worst-case scenarios. Germany wants the word "common" deleted. So do Sweden, Finland, Denmark and the Netherlands.

France wants to keep the word in the document, as do Italy, Spain and Portugal. The northern countries are afraid that they'll be asked to pay even more than they already do, while the south is hoping for more shared responsibility in the crisis. The dispute continues for three-quarters of an hour. The northern countries win the fight and the word "common" is stricken from the closing statement of the most recent EU summit."

This happened on Dec. 13 and 14, during a meeting of the European Council, the powerful EU body consisting of all 27 heads of state and government. They meet behind closed doors, and not even their closest staff members are allowed to attend. During these discussions, secrecy is normally paramount. But as of the last one, that no longer applies.

As to the Van Rompuy's proposal for deeper political integration - "Most of it is science fiction," German State Secretary Link says dismissively at the luncheon in Brussels, referring to the first Van Rompuy document.

At a December 17 meeting in the headquarters of Merkel's Christian Democratic Union party Mrs Merkel  reports that she under the impression that Hollande is trying to obstruct everything she proposes between now and the German parliamentary election. Hollande currently has more allies than she does, she says, which is why cooperation isn't quite working yet. But she's doing her best to gather more allies for Germany, she adds.

Der Spiegel concludes: "It sounds a little like the days when there were still wars in Europe."

Read more: EU Summit Reveals a Paralyzed Continent - SPIEGEL ONLINE

Rules, oversight 'key' to eurozone survival

European countries are not ready for proposals for a political union. Economist Wim Kösters argues in an interview with DW that the decisive question at present is whether shared rules for the currency union can be held to.

DW: Many have criticized the lack of a political union to back up the euro. For months, people have worked on a concept that would fix this problem retroactively. Ideas have ranged from a joint finance minister for the whole currency union all the way to a shared eurozone budget. None of that came up at the EU summit in mid-December. Has the concept of a political union failed?

Wim Kösters: "It's very hard to agree to a political union when important rules have been broken in the past. Those rules, like the no-bailout clause or the stability and growth pact, formed the basis of a rudimentary political union. That showed that people didn't want a constitution at all for the EU. As such, it's hard to agree to a political union in Europe now. It doesn't have the majority's support. So for now, you have to see it as a failed idea."

And a European finance minister - is that a solution to the crisis? I don't think so. The first question is what this minister is supposed to be doing. Is he supposed to operate according to strict regulations, or should he decide from case to case, as France would like to see. Until we've reached agreement on these issues, it's of no use to introduce such an institution.  However, EU finance ministers had agreed to oversight for Europe's banks ahead of the summit. Will that help the euro zone avoid future crises?

"Basically, I think so. If we get a European banking union that entails first and foremost shared oversight over banks, then we avoid the errors that result when some countries are too lax in supervising banks."

Read more: Rules, oversight 'key' to eurozone survival | Europe | DW.DE | 27.12.2012

European Parliament Adopts Uniform Patent System - by James Kanter

On Tuesday, the European Parliament adopted a uniform patent system for Europe. If the plan goes into effect as expected by early 2014, it would try to remedy the country-by-country approach whose time and costs have long been an impediment to innovation across the European Union. 

Achieving the new unified system could conceivably provide encouragement for another, far more ambitious project that European leaders will be grappling with at their summit meeting this week: a uniform system of banking regulation and supervision for the euro area. But the long, tortuous route to the patent agreement might also serve as a cautionary tale. 

The banking union has already bogged down in national battles that some experts warn could drag out the process for years — particularly if changes to the bloc’s treaties are needed to give the central bank new and wide-ranging supervisory powers, or to set up a joint financial backstop to ensure the orderly winding down of failing banks.

Read more: European Parliament Adopts Uniform Patent System - NYTimes.com

Europe seeks to end discord over banking union - by John O'Donnell

France and Germany, traditionally leaders in such integrationist moves, are at loggerheads over parts of the plan, and there is little time left for the EU to meet a commitment to complete the framework for banking union by the end of the year.

Critical questions remain unanswered, such as how many banks the ECB should directly supervise and whether the central bank gets longer than one year, as planned, to fully take on its role.
After three years of piecemeal crisis-fighting measures, agreeing on a banking union would lay a cornerstone of wider economic union and mark the first concerted attempt to integrate the bloc's response to problem lenders.

But reaching a deal, which EU leaders want to sign off when they meet at a summit on Thursday and Friday, will require addressing the concerns of Germany, whose support is crucial, while also satisfying France and others with deep vested interests such as Britain, Sweden and the Netherlands.
"It's not an easy one for Germany," said one diplomat, close to the talks. "But the markets are watching us."

Another diplomat said it came down to a conflict between quality and speed: For the best banking union possible to be put in place it will take time and it may be necessary to extend agreed deadlines.
Berlin is concerned that supervision will develop into a scheme under which it is left to foot the bill for European banks too weak to survive when, as is planned, a central resolution scheme is set up to close troubled lenders.

It is also worried about a potential conflict of interest between the ECB's double role as supervisor and as guardian of monetary policy. Such a conflict could arise if the ECB were to decide to keep interest rates low to prop up banks.

In a sign of the tensions last week, German Finance Minister Wolfgang Schaeuble publicly clashed with France's finance minister at a meeting intended to finalize the plan.

Schaeuble objected to the ECB's Governing Council having the final say over monitoring banks, a stance that appeared to push the talks backwards. One official from a non-euro zone country said on Tuesday Schaeuble had softened his line since.

Read more: Europe seeks to end discord over banking union | Reuters

German Banker Gains Support for Narrower Banking Union - by Annette Weisbach

Georg Fahrenschon, who led Germany’s savings banks in helping quash a proposal for Europe-wide deposit guarantees, is now seeking to limit the remaining aspects of a European banking union: a joint resolution fund and central supervision of all the region’s lenders. 

“I’m hard put to find anyone who speaks in favor of common European deposit insurance these days,” Fahrenschon said in an interview in Frankfurt on Nov. 9. He stepped down as Bavarian Finance Minister last November and became president of the German savings banks association, or DSGV. “It’s a commonly held misconception that banking supervision, banking resolution and deposit insurance all has to be structured centrally via Europe.”

Germany’s 423 savings banks and 11 landesbanks provide 43 percent of the loans to the small- and mid-sized companies, known as Mittelstand, that power the country’s export-driven economy. The lenders oppose a joint liability plan because they say it would put German depositors at risk over bank rescues in countries like Spain, where a real-estate collapse forced the government to seek a European Union bailout for its banking system.

“Our mandate is against that,” said Fahrenschon, 44. “The savings banks have a mandate to operate regionally by taking deposits and lending regionally.”

Read more: German Banker Gains Support for Narrower Banking Union - Businessweek

EU summit complex issues slowly being resolved

Following the typical EU-style marathon talks, leaders agreed to complete the legal framework for a single banking supervisor in Europe by the end of this year, which is considered a crucial measure to prevent banking risks and cross-border contagion from emerging.

The leaders also reached consensus on the legal framework, but details such as the timeline and the role of non-eurozone countries within the supervisory mechanism are yet to be determined.

Member countries are, however, aware that inaction might trigger further problems of deeper economic downturn, higher unemployment rate and more capital flight.

EU-Digest

Europe pushes ahead towards ECB bank supervision

European Union leaders agreed on Friday a single supervisor will take responsibility for overseeing euro zone banks from next year.

The decision opens the way for the euro zone's rescue fund to inject capital directly into ailing banks during the course of 2013, but whether that will allow Spain to transfer some of its banking liabilities off the government's books will also not be determined until later in the year.

"There was an agreement, a good agreement, on timing and about the banks as whole," French President Francois Hollande told reporters as he arrived for the second day of the summit following 10 hours of talks on Thursday that carried on into the early hours of Friday.

"There was a willingness to progressively put in place the (oversight) mechanism."

European Council President Herman Van Rompuy said the 27 leaders agreed to adopt a legal framework by the end of this year giving the European Central Bank overall responsibility for banking supervision, with national regulators consulted.

"Once this is agreed, the single supervisory mechanism could probably be effectively operational in the course of 2013," he told a 4 a.m. news conference.

French and EU officials said all 6,000 banks in the single currency area would gradually come under ECB supervision by 2014, starting with banks receiving state aid, then large cross-border institutions, even though a statement from EU leaders did not specify a number or the specifics of a timeline.

Read more: Europe pushes ahead towards ECB bank supervision | Reuters

EU: Six predictions on how the fiscal crisis will play out across Europe - by Dr Gavin Barrett

Indicators suggest euro zone states will emerge from this plight bound by tighter links and where some will move towards banking union. Among the  6 predictions.

1 The euro will survive the crisis institutionally reinforced and more integrated

2 Ireland will receive sufficient assistance in relation to its bank debt to facilitate its return to economic independence 

3 Greece will remain in the euro 

4 The euro zone will become the new Europe French thinker 

5 The UK will be confronted with at least two major European questions within a few short years 

6 Institutionally and attitudinally, the course of the crisis will turn out to have been a steep learning process across Europe – but a learning process nonetheless 
  
Read more: Six predictions on how the fiscal crisis will play out across Europe - The Irish Times - Mon, Oct 15, 2012

EU summit: Angela Merkel calls for national budget veto

Angela Merkel

The German chancellor has called for the EU to be given the power to veto member states' budgets, hours before leaders meet in Brussels for a summit. 

Angela Merkel said the economics commissioner should be given clear rights to intervene when national budgets violated the bloc's rules.

The idea is likely to be strongly opposed by members concerned about any increase in the EU Commission's powers.

The summit is expected to focus on plans for a banking union.

Read more: BBC News - EU summit: Angela Merkel calls for national budget veto

European Union summit - No decision yet on banking union at EU summit says German official

A top German government official on Wednesday dashed hopes of swift progress on strengthening Europe's financial sector, saying this week's summit of the bloc's 27 leaders won't make any final decisions on setting up a single banking supervisor.

Many "legal, technical and political details" for a continent-wide supervisory authority still have to be hammered out, said the official, who briefed reporters on condition of anonymity in line with government policy.

The single supervisor is part of the so-called banking union plan -- one of the key projects to bind the 17 countries that use the euro closer together. By creating closer financial and political ties, the eurozone's leaders hope to secure the future of their currency.

The European Union's executive Commission, the European Central Bank and several EU nations such as Spain and France would like to see the new system in place on Jan. 1 but Germany has hit the brakes. Chancellor Angela Merkel has repeatedly stressed that "quality must trump speed."

Read more: European Union summit

EU summit to examine Spain, Greece and banking union

This week investors will be watching and waiting for this Thursday and Friday’s European Summit in Brussels where leaders will concentrate on such topics as a bailout for Spain, the situation in Greece and the banking union. However, as is often the case, market expectations are low for this meeting of the heads of state of the 27 member countries.

Credit Suisse analysts explain that market sentiment on such issues as a direct recapitalisation of European banks by the ESM permanent bailout fund or the creation of the banking union will not be resolved this week. “We expect this statement to be similar to the one they gave last June. There won’t be decisions made on mechanisms to better control individual nation’s budgets or on assistance to problematic countries. Those are decisions that will be undertaken much later,” they say.

Spain continues to avoid requesting the European Central Bank (ECB) to activate its OMT debt purchasing programme since it would be considered to be a bailout. Credit Suisse doubts a call for help will come anytime soon and a weekend report from Reuters suggested it won’t be made until November.

Indeed, Barclays suggests that no request will be made by the central government until after regional elections in Galicia on October 21st (regional elections are also being held next Sunday in the Basque region of Spain). In this context, the broker recommends keeping an eye on the Spanish bond auctions both tomorrow and Thursday, especially after the recent downgrade by S&P.

Link Securities holds that “for the moment at least, the possibility of the country requesting a bailout in the short-term seems to have cooled off. This isn’t just because of the Spanish government’s political agenda but also because of opposition from Germany and ‘ally-countries’ such as Holland and Finland that don’t wish to suffer from the political damage that yet another Eurozone bailout would cause. Until it’s absolutely necessary, these countries want to delay Spain’s request.

“As has come to be ‘business as usual’ in the Eurozone, problems are neither dealt with nor solved. Agreements aren’t followed and each state’s government is always looking out for its own interests. This is the main reason why investors have lost faith in the region’s potential and we can see this in the last three years of fixed income and equity behavior in the area.” 

Read more: EU summit to examine Spain, Greece and banking union | ShareCast - News you can use

Why Europe's bank supervisor is hamstrung - by Daniel Gros & Dirk Schoenmaker

The European Commission has now presented its legislative proposal for a banking union whose key element is a ‘Single Supervisory Mechanism’ to be headed by the ECB, but it says nothing about deposit insurance at the national level. Is that viable?

The best way to avoid these potential conflicts and provide the new eurozone supervisor with proper incentives is to gradually move deposit insurance and resolution to the eurozone level as well, thus ensuring eventually the needed alignment of responsibilities. A gradual introduction would ensure that both national and EU-level authorities have ‘a skin in the game’ during the transition.
 
In the US, a two-tier system emerged with banks chartered at the state or federal level. In the end the smaller, state-chartered banks became less and less important. This analogy suggests a compromise: groups of smaller banks with their own mutual guarantee system (e.g. savings or mutual banks) might not fall under the direct supervision of the ECB, with national supervisors, who have a better local knowledge, remaining responsible for the day-to-day supervision of these banks.
 
However, a large group of small banks with a similar business model can also represent a danger for systemic stability. This implies that, the national supervisors would remain responsible towards the ECB for the systemic stability of these groups of banks and that the ECB should be given the right to require all the information required to assess the stability of these groups.

The debate about Banking Union is running into the typical chicken-and-egg problem; Most academic observers agree that deposit guarantee and resolution should be organised at the same level as supervision. But at present only the creation of a ‘Single Supervisory Mechanism’ to be headed by the ECB is being discussed; with deposit insurance and resolution to be considered only later when this SSM has shown its effectiveness.
We argue that the SSM is unlikely to be working well unless a European Deposit Insurance and Resolution Agency is introduced gradually at the same time.

Read more: Why Europe's bank supervisor is hamstrung | Daniel Gros & Dirk Schoenmaker, VoxEU | Commentary | Business Spectator

ECB - Draghi: ‘EU must clarify euro vision’ | euronews, economy

European Central Bank President Mario Draghi has urged European leaders to clarify their vision for the euro, saying the ECB cannot fill the policy vacuum.

Draghi told the European Parliament the bloc should act quickly to bring an end to the eurozone debt crisis or risk disaster.

He said: “The next step for our leaders is to clarify what is the vision for a certain number of years from now. I think the sooner this has been specified, the better it is. The next question is how do we substantiate this greater clarity? I think that one first step we could take is.. a banking union.”

In his sharpest criticism yet of eurozone leaders’ handling of the crisis, Draghi urged they spell out detailed plans for the euro and fiscal cooperation, something he believes will require governments to surrender some of their sovereignty to succeed.

Read more: Draghi: ‘EU must clarify euro vision’ | euronews, economy

Europe considers a ‘banking union’ - by David McHugh and Raf Casert

As Europe’s debt crisis intensifies, top officials say the continent urgently needs a central authority with the financial muscle to fix broken banks.

The proposal could give immediate relief to Spain’s increasingly fragile economy, with its borrowing rates rising to unsustainable levels, rattling investors.

The European Commission called Wednesday for a ‘‘banking union’’ that could oversee and, if needed, bail out banks without having to go through national governments. It would have the power to force banks to heal their finances and have access to a pool of money to rescue banks, lifting pressure off individual countries, like Spain, that are already strapped for cash.

Germany resists allowing a central body to spend money — much of which Berlin provides — to rescue banks. But markets nudged Spain, the fourth-largest economy in the eurozone, ever closer to needing financial aid that Europe can scarcely afford to give it. Its 10-year bond yield rose to 6. 64 percent Wednesday, close to the 7 percent that caused Greece, Ireland, and Portugal to need financial assistance in the past.

Read more: Europe considers a ‘banking union’ - Other - The Boston Globe