European banking union, Scholz insists on completing it. And the reason is called Brexit

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In a recent speech on the Financial Times, Olaf Scholz has launched an appeal for the completion of the European Banking Union. According to the German finance minister, with the loss of the City of London as hub financial following the Brexit, there is a real risk that Europe will become dependent on United States or from China for financial services, a perspective that he believes should be avoided.

Although several important advances have been made, the process to date still appears unfinished. Single European supervisory bodies have been set up, capital levels have increased significantly and a framework has been established to restructure capital banks of systemic importance in failure without jeopardizing financial stability or having to use public funds. However, European financial markets are still fragmented and there are still barriers to the free movement of capital and financial liquidity.

The appeal describes four steps to achieve the stated objective:

1. A common mechanism for resolving insolvency management and resolution of banking institutions similar to Us Federal Deposit Insurance Corporation – to date, banks that are not of systemic importance are subject to national legislation;

2. A further reduction of the risks associated with the credits non-performing and with the weighting of the sovereign debt securities held by credit institutions;

3. A common European deposit insurance mechanism;

4. A harmonization of taxation on credit institutions at European level.

This is a pretty statement courageous for a German minister, considering that past efforts to promote banking union in Germany were shipwrecked on the opposition of conservatives of the Christian Democratic Union of Angela Merkel, as well as the Sparkassen, or savings banks, which have their own deposit insurance system.

From the statements of Scholz, who for the moment have been formulated on a strictly personal basis and do not represent the official position of the government of which he is a part, there is a sensitive concern for the state of persistent fragility and fragmentation of the European banking system. An element of weakness that could be particularly critical in a historical moment in which Europe is about to lose the City of London, its traditional financial center.

The opening towards a hypothesis of integration, which inevitably includes mechanisms for the mutualisation of risk between the various countries, was appropriately tempered by a series of caveats and specifications, aimed at clarifying that the mitigation of the burdens borne by the nation-states cannot in any case reach the point of encouraging behavior opportunistic or feed the moral hazard. For example, the deposit insurance at European level will intervene only after the resources of the national guarantee are exhausted and will operate through funding of a limited amount, however, involving national states in the event of additional needs. Only once the banking union is fully implemented will it be possible to authorize the coverage of certain losses in a limited way.

Depending on your preferences and orientations, there are various readings of this around: from the most optimistic, which underline the "openness" to the weakest countries, to the skeptical ones that instead focus on the "price to pay" for access the benefits of the Union.

Trying to avoid extreme interpretations, it is plausible that behind the initiative of the German minister there is a real concern about the weakness of European credit institutions and how this could constitute a disadvantage competitive for the economy of the union towards the rest of the world. Without therefore imagining plots or doing conspiracy it is plausible that Scholz literally means what he has written: the need for a more solid and integrated system has become urgent and it is not tolerable to delay beyond.

@massimofamularo


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