Germany is responsible for the delay in Eurozone banking reform

Angela MerkelThe two-week political deadlock in Washington may occupy the headlines, but the other side of Atlantic Ministers of Member States of the euro area strove for months on an essential element of the financial framework – the creation of a banking union. At today’s meeting of the council of finance ministers (the so-called Eurogroup) in Luxembourg issue will be high on the agenda. The economists, however, are not convinced that it will be significant progress in solving the problem, given the lack of government in Germany. Chris Sikluna, head of economic research at Daiwa Capital Markets, said the political problems in Europe, luckily are much more routine than those in the US, where the business of government is partially blocked due to failure of the negotiations for reconciliation budget for the new financial year beginning on October 1, and therefore unlikely to get much attention this week. While the banking union will be discussed, do not expect a final agreement at today’s meeting. “One of the reasons for the current political momentum in the euro area, of course, is the political vacuum in Germany”, wrote Sikluna in his note. To take away the burden of rescuing failing banks from the shoulders of the debt-ridden country, which was one of the main reasons for the financial crisis in the Eurozone, the leaders of the parties agreed to establish a system which will exercise greater oversight of the financial sector European level.
According to the joint supervisory mechanism, European Central Bank must take control in the fall of 2014 Another element of the banking union will be a general scheme of deposit insurance, which should protect the savings of ordinary depositors. But the third element – the body empowered decision on the fate of distressed credit institutions, known as the General mechanism for resolving the fate of banks runs into obstacles. Germany is opposed to its creation, arguing that the emergence of an organization of this type would require rewriting the treaties of the European Union. It is the largest economy in the euro area and therefore with the largest share in the efforts to save her, but voters there are not willing to foot the bill for the mistakes of other countries. All decisions of the banking union were frozen until the elections in Germany on 22nd September and looks like it will be delayed while continuing the process of forming a government in the country. “Christian Democratic Union is still negotiating a coalition and not a great solution for Europe would not be taken before a new government in Germany”, wrote in a note yesterday Michal Marcussen, head of global economics at French bank Societe Generale, referring to the winner of the German elections, led by current Chancellor Angela Merkel.
Marcussen stressed, however, that the agreement for the banking union is crucial, especially to the general mechanism for resolving the fate of banks. “Does it matter delaying the creation of the banking union? Yes ! Washington occupied the headlines, but a disappointing development around the banking union in Europe deserves attention, ” clearly it is. “It is the general mechanism for resolving the fate of the banks will have the means to sever the fateful relationship between European banks and national debt”, added the manager.
Without such authority risk premiums on national debt because of the cost of recapitalization of banks will continue to push the economic growth of the already struggling Eurozone countries. The senior economist at Swiss bank UBS Paul Donovan, who agreed that “we should not expect much” from the Eurogroup, said that the banking union is even more important given the economic uncertainty in the US. “Progress on banking union that can really give Eurozone some insurance from the secondary effects of the situation in the US is not very likely”, Donovan said this morning. Instead, in the words of Sikluna attention this week will be focused on the second round of talks between Merkel’s conservatives and Social Democrats – the main opposition force in Germany.

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