Combining Solidarity and Responsibility
A look at the recent European summit
The final European summit of 2012 ratified a Single Supervisory Mechanism (SSM) for European banks which will enter into force in March 2014. This is a major decision.
As from 1 March 2014, the European Central Bank will be responsible for direct supervision of the 130–150 largest banks and for indirect supervision of the other 6,000 banks in the Eurozone and in the EU Member States. The UK and Sweden, which are not participating in the mechanism, have allowed the other countries to move forward on this.
With this mechanism in place, it will be possible for banks to be recapitalised directly by the European Stability Mechanism (ESM) if they get into difficulties. Thus, it should be possible to avoid a bank crash with possible systemic consequences, without endangering the public finances of the state in which it the banks are located. The vicious circle of banks demanding to be rescued by their Member States – after the same Member States had previously forced the hand of their banks to finance their sovereign debts – will be broken.
Furthermore, the SSM is only the first step towards a genuine banking union. In the conclusions of the recent European Council, the Heads of State and Government paved the way, with a great deal of technical detail, for a “single resolution mechanism” to resolve the problem of bank failures using European tools but financed in fine by the bank themselves: The text states that it must be ensured “that public assistance is recouped by means of ex post levies on the financial industry”. The Commission is to present a proposal to this effect during the year. The co-legislators (Council and Parliament) are also urged to agree before June 2013 on “the proposals for a Recovery and Resolution Directive and for a Deposit Guarantee Scheme Directive”.
These decisions are certainly an important advance, but doubts remain particularly concerning the capacity of the ECB to create an effective separation between the domains of monetary policy and bank supervision. The demands of each domain could be contradictory and give rise to conflicts of interest. In the period of preparing the SSM, it will therefore be necessary to take special care to ensure that a “great wall” is erected between these two activities.
With the SSM, the ECB will be further increasing its power and influence. That is why it is regrettable that the announcements made by the European Council during the second half of 2012 regarding the development of a roadmap in December to achieve monetary, economic and political union were not followed up by action. The project of Messrs Van Rompuy, Barroso, Draghi and Juncker was dropped. Following an initial Commission paper, it had envisaged three stages, the last of which had been due to start within five years on the drafting of a new European Treaty with increased powers at European level. Hence the political checks and balances on monetary power are not included in any official plans, but all that could change within the space of a year.
In the meantime, European Council President Herman Van Rompuy has been asked to review his work and to propose a timetable next June for organising better coordination and some major reforms of economic policy of the Eurozone states and for strengthening its social dimension. Also on the agenda: evaluating the feasibility of “contracts for competitiveness and growth” between individual Member States and the EU institutions, and solidarity mechanisms which would allow financial aid to go to Member States entering into such contracts. By linking contracts for competitiveness and growth with the solidarity mechanism, the European Council opens the way for another variation of the major ethical challenge of combining the values of responsibility and solidarity. Moreover, proper observance of these values will assure the “new economic model” which Pope Benedict XVI called for in his message for the World Day of Peace 2013. It, too, was published on 14 December.
Translated from the original text in French
“In the economic sector, states in particular need to articulate policies of industrial and agricultural development concerned with social progress and the growth everywhere of constitutional and democratic states. The creation of ethical structures for currency, financial and commercial markets is also fundamental and indispensable; these must be stabilized and better coordinated and controlled so as not to prove harmful to the very poor.”
Extract from Pope Benedict XVI Message for the World Day of Peace 2013