European leaders pledge to end banking union … someday
BRUSSELS (Reuters) – EU leaders will promise to complete the EU’s banking union in the future on Friday, but will leave it to their finance ministers to determine when, according to their draft conclusions.
Completing the banking union, which would involve the establishment of a controversial common deposit insurance scheme, would sharply reduce the possibility of a major banking crisis in the 19 euro-sharing countries and thus boost confidence markets in the euro and the demand for the currency.
But the issue is very sensitive in several euro area countries and euro area finance ministers as well as their non-euro colleagues from other EU countries are stuck trying to agree on the guarantee scheme. deposits for years.
“We reiterate our full commitment to the completion of the Banking Union and, capitalizing on recent discussions, call on (EU finance ministers) to agree, without delay and on a consensual basis, to a phased and time-bound work plan on all outstanding items needed to complete the banking union, ”says the project.
The main outstanding item is the EU-wide deposit guarantee, as there is already a single banking supervisor and a single resolution mechanism for banks that fail.
But before the EU’s common deposit protection, known as the European Deposit Insurance System (EDIS), is agreed, Germany and some other countries say other issues need to be addressed.
First, banks must be less threatened with collapsing in the first place, which means reducing their bad debts and exposure to the debt of a single issuer, such as the government of the country in which they operate, so that ‘they do not go under if the sovereign to whom they are most exposed cannot redeem his bonds.
While the bad debt ratio has steadily declined in the euro area, it is still too high in some countries for Berlin’s liking.
Importantly, limits on the amount of single-state bonds a bank must hold are hard to swallow for Italy, which finances much of its borrowing from local banks. Some other southern countries share Italy’s objections.
Eurozone officials have said no progress on any of the issues is likely before Germany’s parliamentary elections in late September.
But even with a new German government in place, progress will be difficult to make before France holds its elections in May 2022, when serious talks could begin.
Reporting by Jan Strupczewski and Francesco Guarascio; Editing by Giles Elgood