The European Commission proposed what has been characterized as far-reaching powers for regulators to deal with failing banks on Wednesday.
Is this a chilling picture? This tepid proposal, which recommends closer coordination between countries and increased powers to force losses onto bondholders, won’t take effect before 2014, which will be way too late for Greece and Spain, which appears on the brink of being forced to seek a Greek-style bailout, as it is obviously unable to refinance its indebted lenders.
Even if Europe were not on fire at the moment, there are a ton of hurdles to the banking union championed by ECB President Mario Draghi – which is basically a three-pillar plan to establish a central monitoring of banks (gee, I thought that’s what the ECB already did), a fund to wind-down big lenders (we call that a bail-out here in the U.S.) and a pan-European deposit guarantee (good luck getting anything done “pan-European” style.)
Smartly, and true to form, Germany has balked at signing up to a single European scheme that could see it shoulder the costs of a bank collapse in another country (and, why should they?), and Britain fiercely resists any attempt by Brussels to impose EU controls over financial services, which account for almost a tenth of its Wall Street like economy.
At least there are a couple of people who have noticed that Europe is burning:
Nicolas Veron of Brussels think tank Bruegel, says “Everybody’s energy right now should be focused on the current crisis. I’m not sure we can afford the luxury of thinking about a permanent framework when the houses are burning.”
Daniel Gros of the Centre for European Policy Studies think tank said while it was in everyone’s interest to prevent a repeat of the chaos that followed the collapse of U.S. investment bank Lehman Brothers, action was needed now.
“We need immediate decisions”, he said. “We have a crisis on our hands.”
The Commission’s stupid 156-page (draft) legislation, recommends giving supervisors powers to “bail in” or force losses onto bondholders of a failing bank so that taxpayers are kept off the hook, and forge closer links between national back-up funds to wind up cross-border lenders. They can’t even move off of draft.
Are they kidding?
“There was little appetite to create pan-European funds,” he said. “There would be mistrust among states in pursuing such cooperation.”
Translation: Nothing will happen.
Berlin, recognizing the panic in the details and knowing it is firmly in the driver’s seat, is in no hurry. Germany knows that Europe will not make any final decisions on strengthening economic policy coordination between member states until at the earliest, spring of 2013.
The Centre for European Policy Studies’ Gros said only an acceleration of the crisis would prompt German Chancellor Angela Merkel into faster action.
“If it is a slow grind, where the German economy is not visibly affected, it will be hard for her to do that. It has to be so urgent that there is an emergency summit of leaders and that she returns home and says: ‘there was no choice’.”
If you knew that it would come to that, and you were Angela Merkel, what would you do?