The Slog
by John Ward
In the eternal spirit of Alles Klar, Germany has won (as I
predicted) what Wolfgang Munchau calls “a near total victory on banking
union, all the way down to the small print.”
Any banking union was always going to come at the cost of a credit crunch as banks strive to get their assets looking vaguely in proportion prior to the stress tests. In a eurozone already desperately short of capital or growth, it’s not what the ezoners need at the minute. But what they don’t need above all is yet more confusion and Fred Karnos.
EU finance ministers yesterday reached agreement on one or two aspects of the banking/fiscal union proposal – on voting procedures, the predominance of national authorities over the Commission, and so forth. In addition, the ministers also agreed to Germany’s request for a new treaty on bank resolution. But as far as I can tell, all the FinMins have done is confirm that there will still be no sovereign responsibility.
Even the operational principles of the single resolution fund (SRF), and the exact decision-making procedures in the single resolution board are something of a blank piece of paper: almost literally – two documents were circulating on these subjects last Wednesday night with virtually no content in either of them.
Berlin may thus have Alles Klar for their aims sorted, but the Alles in Ordnung dimension seems to be missing. What we have therefore is a victory for Angela Merkel and Wolfgang Schauble, but a Pyrrhic one for Germany: they’re still very much in the frame for mega-costs if when the counting house collapses.
As you’d expect, Suddeutsche Zeitung was in like Flynn with a report that the fees for the German banking sector might be twice as high as originally envisaged. This is because the contributions to the SRF will be based on market share – which is about 25% for all the German banks combined. The Fund will have at most €55bn in it, which is nowhere near enough to cope with even a small financial crisis…..and not for ten years at best.
Director of Global Economics for the D. E. Shaw group Ángel Ubide writes, ‘At a minimum, a European banking union should achieve coherence: banks supervised by the ECB should be covered by a European resolution authority and a European resolution fund, and the governance structure of supervision has to match the governance structure of resolution. The credibility of the ECB as a supervisor is at stake. If a robust resolution system is missing, the ECB may be tempted to keep insolvent banks afloat with liquidity injections.’
Geli and Wolfie, of course, don’t want an ECB run by the Italian Smoothie: zey vont gut solid German bankink to be in control, mit none of ziss sleight von hand.
The Slog pointed out before the German election results that “The Germans who love to go a-wanderung are, in truth, meandering towards disaster with the same blasé optimism of the Weimar middle class after 1931.” By confirming this now, Merkel and Schäuble are achieving greater power for themselves, but storing up problems for Berlin. One can assert this with some degree of certainty because no genuine crisis backstop has been created, clarity is close to zero, and a €55bn fund to hold back a potential asset cock-up involving €27 trillion in bank assets is like sending David into battle against Goliath, minus only his sling-shot.
As I’ve written on several previous occasions, I’m equally sure that Frau Merkel will have a reverse-gear strategyif
when the insoluble Spanish, Italian and Greek problems come to a head. I
think Berlin will forgive much if not all Greek debt, but the other two
problems are way beyond her political or financial capacity.
So then, to Hell in a hand cart we go.
by John Ward
Any banking union was always going to come at the cost of a credit crunch as banks strive to get their assets looking vaguely in proportion prior to the stress tests. In a eurozone already desperately short of capital or growth, it’s not what the ezoners need at the minute. But what they don’t need above all is yet more confusion and Fred Karnos.
EU finance ministers yesterday reached agreement on one or two aspects of the banking/fiscal union proposal – on voting procedures, the predominance of national authorities over the Commission, and so forth. In addition, the ministers also agreed to Germany’s request for a new treaty on bank resolution. But as far as I can tell, all the FinMins have done is confirm that there will still be no sovereign responsibility.
Even the operational principles of the single resolution fund (SRF), and the exact decision-making procedures in the single resolution board are something of a blank piece of paper: almost literally – two documents were circulating on these subjects last Wednesday night with virtually no content in either of them.
Berlin may thus have Alles Klar for their aims sorted, but the Alles in Ordnung dimension seems to be missing. What we have therefore is a victory for Angela Merkel and Wolfgang Schauble, but a Pyrrhic one for Germany: they’re still very much in the frame for mega-costs
As you’d expect, Suddeutsche Zeitung was in like Flynn with a report that the fees for the German banking sector might be twice as high as originally envisaged. This is because the contributions to the SRF will be based on market share – which is about 25% for all the German banks combined. The Fund will have at most €55bn in it, which is nowhere near enough to cope with even a small financial crisis…..and not for ten years at best.
Director of Global Economics for the D. E. Shaw group Ángel Ubide writes, ‘At a minimum, a European banking union should achieve coherence: banks supervised by the ECB should be covered by a European resolution authority and a European resolution fund, and the governance structure of supervision has to match the governance structure of resolution. The credibility of the ECB as a supervisor is at stake. If a robust resolution system is missing, the ECB may be tempted to keep insolvent banks afloat with liquidity injections.’
Geli and Wolfie, of course, don’t want an ECB run by the Italian Smoothie: zey vont gut solid German bankink to be in control, mit none of ziss sleight von hand.
The Slog pointed out before the German election results that “The Germans who love to go a-wanderung are, in truth, meandering towards disaster with the same blasé optimism of the Weimar middle class after 1931.” By confirming this now, Merkel and Schäuble are achieving greater power for themselves, but storing up problems for Berlin. One can assert this with some degree of certainty because no genuine crisis backstop has been created, clarity is close to zero, and a €55bn fund to hold back a potential asset cock-up involving €27 trillion in bank assets is like sending David into battle against Goliath, minus only his sling-shot.
As I’ve written on several previous occasions, I’m equally sure that Frau Merkel will have a reverse-gear strategy
So then, to Hell in a hand cart we go.
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