Marie José Garot. Professor. IE Law School
1 January 2014
Having weathered the existential crisis of the euro, the moment has come to unify the supervision and resolution of banks.
According to an address given by President Van Rompuy back on September 4, the euro’s “existential crisis” is over, but the growth and employment crisis still exists. Despite these soothing words, nobody is letting their guard down, nor should they, because there is stil a great deal left to do to restructure the Economic and Monetary Union, and equip it with the necessary means to combat possible new crises.
The future of the European economic and Monetary Union doubtlessly depends on the creation of a Banking Union, now that the euro is stabilized thanks to new financial aid mechanisms (like the ESM) adopted to prevent default situations in eurozone member states (with all the dramatic repercussions that such situations can bring). It also depends on establishing strict budget balancing rules for EU member states (the so called Six-Pack, Two-Pack, and European Fiscal Pact).
Now the new phase is called “Banking Union” and represents a key step in the European integration process, given that it entails breaking the vicious circle of sovereign debt (which basically comprises the contributors of member states) and the banks’ debts. It is no trifling matter, and nobody understands that better than the Spanish, whose state has received European aid (which has to be returned of course!) to finance some of its banks.
Meanwhile, the Banking Union project rests on three pillars: first, create a Single Supervision Mechanism (SSM); second, harmonize rules in terms of guarantees for deposits; and finally, create a Single Resolution Mechanism (SRM) for banks that are at risk. For the moment, after arduous negotiations member states have agreed to transfer specific functions pertaining to the supervision of large banks to the European Central Bank.
The Single Supervision Mechanism will come into force on November 4, 2014, and the European Central Bank and the national supervision authorities of each country are currently preparing for its implementation, as well as for its famous stress-test designed to gauge which bank will come under the direct supervision of the ECB. Without doubt, the new SSM is an important step in the aim to prevent European banks from jeopardizing the survival of the eurozone, and will also help foster the single market for financial services, which will play such a necessary role in the dynamization of the single market.
But it is not enough. The European Council, the European Commission, and the European Central Bank all agree to support the new Single Resolution Mechanism (the SRM) with effective rules to help banks in difficulty and even, if necessary, to liquidate such banks so that it is the banks’ creditors, and not the taxpayers of member states that are the first to feel the effects. But negotiations among the three institutions, and within the Council itself, are still focused on key issues like the competences of national agencies in resolution processes (vis a vis the Single Resolution Council), the role the Council will play when it comes to actually governing the mechanism, and the actual structure of the single resolution fund.
However, the ideal plan requires eurozone member states to reach an agreement on the resolution rules before the end of the year, so that the SRM can enter into operation shortly after the SSM (January 2015). Although the project presented by the European Commission in July 2013 may need some improvements, the eurozone member states should definitely give their unequivocal support to the project, given its short and long-term effects.