What a banking union means for Europe

A full banking union is needed to stabilise the eurozone. However, even an embryonic union could drive a wedge between the eurozone and the EU-27.

If the eurozone is to become a more stable currency union, key policy functions relating to banking will have to be transferred from the national to the European level.

Political realities mean that only a partial federalisation of banking supervision is in prospect in the short term. For the time being, functions such as resolution and deposit protection will remain national responsibilities.

The resulting institutional configuration will not solve the problem it is intended to tackle – that is, to break the lethal interaction between weak banks and weak sovereigns inside the single currency.

The partial federalisation of banking supervision could, however, drive a wedge between the eurozone and the EU-27 by relegating eurozone outs to the status of second class citizens inside the EU.

The prospect of being side-lined in key EU bodies poses particularly large questions for the UK, which is host to Europe’s largest financial centre and its most eurosceptic government.

ESO: Background information: Multi-speed Europe edges forward with bank decision http://www.europeansources.info/record/multi-speed-europe-edges-forward-with-bank-decision/

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