Brussels – It is necessary to establish the banking union without delay or second thoughts. The President of the Eurogroup, Kyriakos Pierrakakis, calls on all partners to overcome existing obstacles and issues a renewed appeal to Italy, noting that the approval of the treaty reforming the European Stability Mechanism (ESM) is a necessary step towards achieving this objective. “Completing Banking Union is not simply a financial-sector agenda. It is a critical part of Europe’s growth strategy,” he stressed at the Eurofi Financial Forum in Dublin.
The situation does little to help a struggling Europe. “We’re not growing fast enough”, laments Pierrakakis, and this is also because “our banking sector remains fragmented along national borders and lacks sufficient scale.” In this regard, he stresses that “the cost of fragmentation is becoming a strategic tax. A tax on Europe, a tax on scale, a tax on investment, a tax on growth.“.
In a changing world, Europe is clinging to old and outdated ways of thinking, insists the President of the Eurogroup, who highlights the scale of the problem: “Only around 16% of euro-area corporate lending is cross-border.” He noted that currently, “cross-border banking groups still face constraints on moving capital and liquidity efficiently across countries, limiting integration and consolidation.”
Banking union and major groups
As part of the completion of the Banking Union, it is necessary to encourage the creation of large banking groups, overcoming national resistance as illustrated in the Unicredit-Commerzbank case. In the banking sector, Pierrakakis emphasises, “scale increasingly matters for competitiveness and investment in technology.” In comparison, “the largest US banks invest more than two-and-a-half times as much in IT relative to their assets as their European peers,” and the situation “is quite similar” when compared with Chinese banks.
The Banking Union hinges on the ratification of the ESM
To complete the banking union, as requested by the Eurogroup president, Italy will have to overcome the ESM hurdle. Under the political agreements reached by eurozone members, from 1 January 2022, the ESM bailout fund was supposed to begin providing money to the Single Resolution Fund, set up to restructure or wind down troubled banks without burdening citizens. This liquidity contribution (known as the ‘backstop’, or financial safety net) is expected to amount to 1 per cent of all deposits held in European banks participating in the crisis resolution mechanism, totalling approximately 80 billion.
Under the ESM reform, the intergovernmental body would come to the aid of a Member State upon request, providing loans on stricter and more rigorous terms. This is the political sticking point that has so far prevented the current government from honouring the agreements made by previous governments, holding all partners hostage.
Ratifying the ESM is not the only step needed to complete the Banking Union. There is also the issue of the European Deposit Insurance Scheme (EDIS), which remains unresolved and is still up in the air, and which is just as necessary as the new mandate for the European Stability Mechanism.
English version by the Translation Service of Withub
