A European Union bank can bring benefits only if it is properly integrated into a fiscal union, having the power to stop violations of budget rules by said Vice President of the German Central Bank (Bundesbank) on Tuesday, quoted by Reuters. Support for European Union Bank was expressed by German Chancellor Angela Merkel on Monday. In her creation of a pan-European regulatory authorities and ensure banking stability can be a long term solution to financial crisis.
Sharing the burden
Many European politicians offer banking and fiscal union to shift the burden of financial crisis on the wider European shoulders. This will ease the pressure on individual countries like Greece and Spain.
“In a banking crisis in the Union one of the banking systems of countries can lead to the use of taxpayers’ money from other countries,” said Vice President of the Bundesbank Sabine Lautenshleger at a conference on Banking Supervision. “Who gives the money should have the right to control, especially to large amounts related to the suppression of banking crises,” she added.
It is not yet clear what politicians have in mind “bank” and “fiscal” Union said Lautenshleger. However, a bank union would bring benefits of more integrated banking supervision or more resources to support national banks and to prevent a panic flight of capital.
Need general authorities
Vice President of the Bundesbank, however, warned that the banking union without the support of the fiscal unity is not a good idea.
“This fiscal union does not mean that national parliaments will fully convey its budgetary powers. But it would be an indispensable part of a delegation with clear, strict EU budget rules, especially with automatic powers of intervention in case of repeated violation of rules.”
Banks in countries with higher prices for refinancing would receive the greatest benefits from the Banking Union and may use this advantage to buy more government bonds in their own countries, but this will invalidate the disciplining effect of financial markets, says Lautenshleger. So Union Bank should include a more integrated banking supervision and rights greater than those of national banks.
Berlin does not secretly want to create a pan-European rescue fund and guarantee system for bonds without appropriate controls of a fiscal union, because it may be that Germany will still have to pay the bill.