Europe moved a step closer to a banking union yesterday with a plan for the European Central Bank (ECB) to police banks, a cornerstone of the closer fiscal integration designed to end years of financial and economic turmoil in the region.
European Commission President Jose Manuel Barroso outlined the proposal in his annual “state of the union” address, laying out a path to further economic and fiscal integration to underpin the future of the euro.
“The crisis has shown that while banks became transnational, rules and oversight remained national,” Barroso told members of the European Parliament. “We need to move to common supervisory decisions, namely within the euro area. The single supervisory mechanism proposed today will create a reinforced architecture, with a core role for the European Central Bank ... It will be a supervision for all Euro area banks.”
Photo: Reuters
The proposed banking reforms, which need to be approved by EU member states, aim to break the link between heavily indebted countries and their struggling banks, tackling a core element of the debt crisis that has afflicted Europe since early 2010.
For the plan to work, it will require countries to surrender a degree of sovereignty over supervising their banks. This has long been a national responsibility, and the proposal has already led to tensions with Germany and Britain.
A banking union foresees three steps: The ECB gets the power to monitor all eurozone banks and others in the wider EU that agree to the oversight; the establishment of a fund to close troubled banks; and a fully fledged scheme to protect citizens’ deposits across the eurozone.
“The challenge is gigantic,” said Nicolas Veron, an expert in EU financial policy with think tank Bruegel. “It’s not just banking union. Banking reform is part of a broader agenda of integration that has been made more pressing by the crisis.”
Handing powers of supervision to the ECB also unlocks the possibility of direct aid to banks from the eurozone’s permanent rescue scheme, the European Stability Mechanism (ESM), although it is not clear when Spain and others would benefit.
Under the terms of the proposal, the ECB would be at the head of the current fragmented system of national regulators, with the power to police, penalize and even close banks across the eurozone.
The ECB would also gain powers to monitor banks’ liquidity closely and require them to keep more capital to protect themselves against future losses.
Reaching agreement on the terms of the union could be complicated, delaying the introduction of the new regime beyond the target set by eurozone leaders of the beginning of next year.
In his speech, Barroso also called for the EU to be turned into a “federation of nation states” in a sweeping demand for countries to surrender more sovereignty and move toward full integration.
Barroso said he was not calling for a European “superstate,” but said the EU would always be less than the sum of its parts unless the union was deepened.
“Let’s not be afraid of the words: We will need to move towards a federation of nation states. This is our political horizon. This is what must guide our work in the years to come,” he said in his annual “state of the union” address. “A democratic federation of nation states that can tackle our common problems, through the sharing of sovereignty in a way that each country and its citizens are better equipped to control their own destiny.”
While there may be enthusiasm in some European capitals for such a move, it is a vision that is likely to rankle in countries such as Britain, where there is strong opposition to the idea of more powers being devolved to Brussels.
Some members of the European Parliament, including committed pro-Europeans, such as former Belgian prime minister Guy Verhofstadt, immediately spoke out against Barroso’s call, saying the EU needed to deepen the structure already in place, not become a federation of nation states.
In the meantime, Barroso called for “broad debate” across Europe and its citizens about how the continent planned to recast itself and what attributes it would need to compete with its major trading partners, such as China and the US, deep into the 21st century.
“Many will say that this is too ambitious, that it is not realistic,” he said. “But let me ask you this — is it realistic to go on like we have been doing? Is it realistic to see more than 50 percent of young people without jobs in some of our member states? The realistic way forward is the way that makes us stronger and more united. Realism is to put our ambition at the level of our challenges.”
BUSINESS UPDATE: The iPhone assembler said operations outlook is expected to show quarter-on-quarter and year-on-year growth for the second quarter Hon Hai Precision Industry Co (鴻海精密) yesterday reported strong growth in sales last month, potentially raising expectations for iPhone sales while artificial intelligence (AI)-related business booms. The company, which assembles the majority of Apple Inc’s smartphones, reported a 19.03 percent rise in monthly sales to NT$510.9 billion (US$15.78 billion), from NT$429.22 billion in the same period last year. On a monthly basis, sales rose 14.16 percent, it said. The company in a statement said that last month’s revenue was a record-breaking April performance. Hon Hai, known also as Foxconn Technology Group (富士康科技集團), assembles most iPhones, but the company is diversifying its business to
Apple Inc has been developing a homegrown chip to run artificial intelligence (AI) tools in data centers, although it is unclear if the semiconductor would ever be deployed, the Wall Street Journal reported on Monday. The effort would build on Apple’s previous efforts to make in-house chips, which run in its iPhones, Macs and other devices, according to the Journal, which cited unidentified people familiar with the matter. The server project is code-named ACDC (Apple Chips in Data Center) within the company, aiming to utilize Apple’s expertise in chip design for the company’s server infrastructure, the newspaper said. While this initiative has been
GlobalWafers Co (環球晶圓), the world’s No. 3 silicon wafer supplier, yesterday said that revenue would rise moderately in the second half of this year, driven primarily by robust demand for advanced wafers used in high-bandwidth memory (HBM) chips, a key component of artificial intelligence (AI) technology. “The first quarter is the lowest point of this cycle. The second half will be better than the first for the whole semiconductor industry and for GlobalWafers,” chairwoman Doris Hsu (徐秀蘭) said during an online investors’ conference. “HBM would definitely be the key growth driver in the second half,” Hsu said. “That is our big hope
The consumer price index (CPI) last month eased to 1.95 percent, below the central bank’s 2 percent target, as food and entertainment cost increases decelerated, helped by stable egg prices, the Directorate-General of Budget, Accounting and Statistics (DGBAS) said yesterday. The slowdown bucked predictions by policymakers and academics that inflationary pressures would build up following double-digit electricity rate hikes on April 1. “The latest CPI data came after the cost of eating out and rent grew moderately amid mixed international raw material prices,” DGBAS official Tsao Chih-hung (曹志弘) told a news conference in Taipei. The central bank in March raised interest rates by