Europe’s efforts to form a united front behind eurozone banks are reaching a climax, but many fear they will fail to restore confidence and prove flimsy should another crisis strike.
After more than a year of talks, ministers from across the EU early on Thursday agreed to close failing banks, but the process will be complex and politicized. They also stopped short of an ambitious plan for eurozone countries to help each other in tackling problem lenders.
An agency and fund to wind down bad banks, working in tandem with the European Central Bank as the new watchdog, is an important step towards banking union, but the loose ends could lead to the complete unraveling of the project.
Although hailed as a “historic” moment by French Minister of Finance Pierre Moscovici, many who emerged from the meeting into the Brussels rain were disappointed by the result.
“It’s really a farce,” said one senior official involved, who asked not to be named. “We’re patting [each] other on the shoulder and congratulating each other, but really what has been achieved is a far cry from what was needed.”
After the agreement among countries, talks now begin with the European Parliament to finalize the law.
With no immediate banking crisis in sight, the new structure is likely to go untested for now, but it could buckle if one were to happen.
Furthermore, promises to pool eurozone resources to deal with bad banks are so distant — only after 10 years if at all — that they will do little to shore up confidence.
In the meantime, banks will pay into a fund that will grow to 55 billion euros (US$75 billion), but only by around 2026, and that amount would have been entirely eaten up by the Irish banking bailout alone. New rules would, however, push more of the burden onto bank creditors.
Some officials fear missing elements in the scheme could restrain the European Central Bank from revealing the true extent of banks’ problems in health checks next year if this would overburden weak countries with a costly bill for their repair.
For Alan Ahearne, an economist who advised the Irish government when it was sunk by its banking collapse in 2010, the deal does not amount to much.
“The sovereign is still the backstop for its own banking system,” he said. “That’s not a proper banking union. That means that funding costs for banks in peripheral countries remain high and sovereign borrowing costs will remain high.”
What has been achieved in Europe is a pale shadow of the US, where the federal government can transfer funds to help weaker states. Strong countries in the eurozone such as Germany do not send aid to weaker states such as Portugal or Greece. Instead, they lend them money.
“The state of Pennsylvania does not have to issue bank guarantees. That’s done by federal agencies,” Ahearne said. “That’s true banking union.”
Compounding this problem, the procedure that will be used to shut a bank in the eurozone will be heavily politicized, involving as many as all 18 countries in the currency bloc, each fighting to protect its own interests.
This process, described as “laughable” by one economist, will also involve officials from the European Commission as well as a new agency tasked with closing banks. Although ministers agreed a fast-track procedure, even lawyers in the room were perplexed by how it should work.
The European Central Bank (ECB), whose representative in the meeting, Vitor Constancio, was highly critical throughout negotiations, is not satisfied. However, there is little the ECB, which wants to stay outside the political wrangle, can do.
Instead, it and others hope the deal can be toughened up in negotiations with the European Parliament.
Sharon Bowles, an influential lawmaker who will play a key role in these negotiations, said the system proposed was too political.
“We don’t trust the countries on this,” she said.
However, it seems unlikely that they will be able to persuade Germany, which continues to stand firm against the use of eurozone money to back a scheme for tackling troubled banks, to soften its position. Throughout negotiations Berlin has determined much of the agenda.
It succeeded in winning an early introduction of EU rules that allow the imposition of losses from early 2016 on the bondholders and even large depositors of failing banks, as happened in Cyprus.
Yet the quid pro quo that many of its peers expected, namely that Germany would sanction pan-eurozone backing for a fund to cover the clean-up costs, never materialized.
“It’s a very German deal,” said one official who attended the negotiations. “There is not much there for the others.”
Germany’s finance minister trumpeted the agreement as a route to impose losses on investors.
One ally, Dutch Finance Minister Jeroen Dijsselbloem, was even more forthright.
“Everyone is always very interested in the backstop. I’m interested in prestops,” he said. “Banks ... can take the first blow. The second blow will have to be carried by the investors, shareholders, bondholders in the banks. And the third blow ... will be carried by the fund, but the fund is also paid by the sector itself.”
However, German Member of the European Parliament Sven Giegold said Germany’s dismantling of much of the deal may come back to haunt it: “I find it shocking that one country is able to push through so much. When one country has too much power, this can backfire.”
With its passing of Hong Kong’s new National Security Law, the People’s Republic of China (PRC) continues to tighten its noose on Hong Kong. Gone is the broken 1997 promise that Hong Kong would have free, democratic elections by 2017. Gone also is any semblance that the Chinese Communist Party (CCP) plays the long game. All the CCP had to do was hold the fort until 2047, when the “one country, two systems” framework would end and Hong Kong would rejoin the “motherland.” It would be a “demonstration-free” event. Instead, with the seemingly benevolent velvet glove off, the CCP has revealed its true iron
At the end of last month, Paraguayan Ambassador to Taiwan Marcial Bobadilla Guillen told a group of Chinese Nationalist Party (KMT) legislators that his president had decided to maintain diplomatic ties with Taiwan, despite pressure from the Chinese government and local businesses who would like to see a switch to Beijing. This followed the Paraguayan Senate earlier this year voting against a proposal to establish ties with China in exchange for medical supplies. This constituted a double rebuke of the Chinese Communist Party’s (CCP) diplomatic agenda in a six-month span from Taiwan’s only diplomatic ally in South America. Last year, Tuvalu rejected an
South China Sea exercises in July by two United States Navy nuclear-powered aircraft carriers reminds that Taiwan’s history since mid-1950, and as a free nation, is intertwined with that of the aircraft carrier. Eventually Taiwan will host aircraft carriers, either those built under its democratic government or those imposed on its territory by the Chinese Communist Party (CCP) and its People’s Liberation Army Navy (PLAN). By September 1944, a lack of sufficient carrier airpower and land-based airpower persuaded US Army and Navy leaders to forgo an invasion to wrest Taiwan from Japanese control, thereby sparing Taiwanese considerable wartime destruction. But two
As Taiwan is engulfed in worries about Chinese infiltration, news reports have revealed that power inverters made by China’s Huawei Technologies Co are used in the solar panels on the top of the Legislative Yuan’s Zhenjiang House (鎮江會館) on Zhenjiang Street in Taipei. However, what is even more worrying is that Taiwan’s new national electronic identification card (eID) has been subcontracted to the French security firm and eID maker Idemia, which has not only cooperated with the Chinese Public Security Bureau to manufacture eIDs in China, but also makes the new identification cards being issued in Hong Kong. There might be more