A lifesaver for the euro” “

The banking union is the subject of lengthy negotiations within EU institutions. But time is running out, since the European Central Bank has begun a process of comprehensive assessment of European banks. Legislative issues must be resolved by the end of the parliamentary term, around March. It is therefore important to highlight some aspects of banking union and certain ethical issues involved. The euro crisis has created a vicious cycle involving States and banks. A crisis in the banking sector is likely to worsen the situation of national budgets, due to efforts made at national level to rescue the banks. On the other hand, a public debt crisis will cause problems in the banking sector as banks hold in their portfolios significant portions of public debt securities.The creation of a banking union will complete monetary union in a decisive manner. Along with economic and budgetary (fiscal) union, it is a part of the “project” that the European Commission has recently published to strengthen economic governance, highlighting issues regarding political and democratic legitimacy that are coming to the fore at European level (political union).The banking union includes four elements. The first relates to unified equity rules: Crd IV package entered into force on 17 July 2013. It transposes into the new European regulatory framework global regulations on banks’ capital base (“Basel III accords”), since during the financial crisis it became evident that banks’ capitalization was too fragile, which made it difficult for them to absorb the trauma resulting from destabilized financial markets. The second element concerns European banking supervision, namely, legislation on a single mechanism for banking supervision under the aegis of the ECB, finally adopted in October 2013. Since October 2014, the ECB will directly control the 130 European systemic banks, i.e. the major credit institutions. Meanwhile the solidity of these banks will undergo close examination. The third element of banking union is a European plan to resolve banking crises including a resolution fund in this area: as a first step, the European Council of Ministers in July 2013 reached an agreement with national authorities to harmonize rescue procedures of a bank. In the process, the Commission adopted a proposal for a European mechanism for the resolution of a banking crisis (in case of transnational crisis), including the creation of a single fund. Under this proposal, a new single Council for resolution or the Commission will decide to initiate bailout procedures. A bailout fund, financed by banks, would be under the control of a single resolution Council. The legal basis for this proposal, the Commission’s role and the management of the transition phase of the bailout funds (before there is enough money) are still the subject of disagreement and the European Council invited the legislators (Parliament and Council) to reach an agreement by the end of the year.The fourth element is a common system of deposit insurance. The Commission’s proposal is blocked between the Parliament and the Commission but a solution is expected by the end of the year. Finally, by the end of November, the Commission announced a proposal for the reform of the banking sector to better separate the activities of deposit banks and those of investment banks.Banking union should thus enable to step up banks and financial markets supervision, and avoid the formation of speculative bubbles. All this would be useful to consolidate a single market in financial services. It is worth noting, finally, that the fragmentation of banking supervision in the single market and the resolution of banking crises within national legal frameworks represent a great disadvantage for the economies of many Member States. Because of the weakness of their banks, businesses in these countries have to pay remarkably higher interest rates to finance their investments compared to their competitors in other countries. This is a real problem in the single market that will need to be remedied as soon as possible.