The latest turmoil in the financial markets should serve as an incentive to complete the institutional framework of the banking union and the capital market union, especially the implementation of a common deposit guarantee system, the leaders of the euro zone, meeting in Brussels while the collapse of the shares of the German banks Deutsche Bank (-13%) and Commerzbank dragged down those of other European entities.
These movements, which occur two weeks after the bankruptcy of Silicon Valley Bank in the United States and the rescue of Credit Suisse in Switzerland, show that despite the reassuring messages from the European Central Bank (ECB) about the strength of European banks the crisis of confidence in the system may spread to the euro area. “Recent events in the financial markets remind us of the need to remain vigilant and continue to control risks” and, although the liquidity situation of European banks is good, “we cannot be complacent”, said the president of the Eurogroup, Pascale Donohoe upon his arrival at the summit, in which the president of the ECB, Christine Lagarde, also participated.
The final declaration of the euro summit, after which the leaders of the community institutions have not appeared, stresses that “the banking union has significantly strengthened the resilience of the European banking system” and insists that European banks, in these moments, it has a strong position in terms of liquidity. The Heads of State and Government of the euro zone “call to maintain efforts to complete our banking union in line with the Eurogroup declaration of June 16, 2022”, concludes the statement from the leaders, which is also committed to advancing in the capital market union.
The mention of this text refers to the last attempt to advance in the creation of a European deposit fund but limited to a reinforcement of the national systems. The President of the Spanish Government, Pedro Sánchez, has welcomed the European declaration but has admitted that this approach is not enough for Spain, which has defended at the meeting the implementation of “a European guarantee fund” because “it would improve the confidence of markets and avoid risks of fragmentation in Europe”.
The mention of this text refers to the last attempt to advance in the creation of a European deposit fund but limited to a reinforcement of the national systems. The President of the Spanish Government, Pedro Sánchez, has welcomed the European declaration but has admitted that this approach is not enough for Spain, which has defended at the meeting the implementation of “a European guarantee fund” because “it would improve the confidence of markets and avoid risks of fragmentation in Europe”.
Although in all euro zone countries national legislation guarantees up to 100,000 euros per deposit, there is no mechanism to cooperate at the European level in case needs overwhelm national authorities. The creation of a European fund – or, as an intermediate step, the gradual connection and by sections of the national systems – is the main pending task of the EU after the previous financial crisis. The project was launched in 2012 but all the proposals and alternatives discussed to date have been bogged down by German opposition to the project, which would potentially mean that in the event of a banking crisis German taxpayers would have to pay part of the cost of guaranteeing the bank deposits in other European countries.
The European Banking Authority, chaired by the Spanish José Manuel Campa, this week urged the governments of the euro zone to work towards “a common deposit insurance plan”. Although “it is not worrying” because an immediate problem is feared, “it would be good to have the issue resolved for the future”, point out Spanish diplomatic sources, who consider the holding of this summit “important” and that European leaders send messages in favor of completing the banking union. “We have to look for formulas to move forward,” these sources add.
“We really need the banking union,” said the Belgian Prime Minister, Alexander de Croo, who nevertheless stressed that the levels of liquidity in European banks are high and that the ECB’s decision to go ahead with the rate hike last week denotes that you believe the situation is stable. “At the moment, we don’t see any reason to be concerned but we are watching everything closely,” he added, “because nobody knows what could happen.” After listening to Lagarde, the Dutch Prime Minister, Mark Rutte, has judged “very unlikely” the repetition of a financial crisis in Europe like the one of a decade ago thanks to “how we have organized ourselves in Europe” since then, marking distances with the quality of banking supervision in the United States.
