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Economic and Monetary Union

Published on January 6, 2014
Article by M. Pierre Moscovici, Minister of Economy and Finance, in the daily newspaper Le Monde

Paris, December 21, 2013

Banking union is a political step forward for all the peoples of Europe
On 18 December, the finance ministers of the 28 European [Union] countries reached an historic agreement which creates banking union: it is the biggest phase of financial integration in Europe since the creation of the single currency. The banking union decided upon at the European summit of June 2012, on the French President’s initiative, and built in a year and a half will see the light of day within the timeframe allowed. It is the final result of a determined political commitment, followed by resolute implementation.

Through banking union, a new political ambition is being expressed for Europe and its peoples.

Banking union represents, first of all, the ambition to regain control after three decades of financial deregulation which have taken Europe to the brink of the abyss. The components of banking union – integrated European supervision, crisis resolution mechanisms, deposit guarantees – are all brakes to keep finance in check and definitively draw a line under financial instability, which was behind the 2008 crisis.

As a central plank of this action, we have created single supervision in the Euro Area and given the European Central Bank responsibility for it, so as to monitor a financial sector that long ago ceased operating in a solely national framework.

Banking union also represents a huge ambition to clean up finance. We have created a single, Euro Area-wide mechanism responsible for handling bankruptcy procedures for banks in difficulty or maintaining their activity. There is no question of governments being obliged to bail out institutions supposedly too big to fail in order to prevent their economies being destabilized. These rescues are a heavy burden on public debt and taxpayers.

This new system will be fair: in the event of difficulty, it will no longer be taxpayers but the banks’ creditors and shareholders who will be called upon first. It is natural to balance the responsibilities of those taking risks – often to their own profit – and of those bearing the cost.

Moreover, a single resolution fund – a sort of insurance policy that will have firepower approaching €60 billion – will be topped up by banks in the Euro Area. The use of its resources will be gradually pooled, in order to achieve a genuinely single fund for the whole Euro Area. So in future the banks will pay for the banks. They will thus have a collective interest in their sector functioning properly. The era of privatizing profits and pooling losses is drawing to an end; that of protecting taxpayers and despositors and of pooling safeguards is beginning.

The Euro Area is thus asserting its desire to act jointly in the face of common risks. In addition to this single resolution fund mechanism, a common public safety net will complete the strengthening of the system. It is about ensuring that the single resolution mechanism will always be capable of financing its interventions, even in the event of a large-scale systemic crisis. In the transition to the single fund, the European Stability Mechanism and national systems will already provide this safety net.

Finally, let us not forget that deposit guarantees for savers of up to €100,000 will be strengthened. We are thus building a series of bulwarks between costly bank collapses, on the one hand, and taxpayers and depositors, on the other.

Behind banking union, we’re ultimately expressing a major ambition for European growth. The financial crisis has created new borders within the Euro Area, preventing its members from taking full advantage of their single currency membership. Two similar SMEs in the Euro Area, separated only by a border, are today offered different finance conditions and therefore unequal development prospects.

Banking union will enable us to piece together the shattered fragments of Economic and Monetary Union and will create for all its members the conditions for accelerated growth. For many people, Europe today embodies concerns and is synonymous with constraint. By the very fact of banking union, it regains its initial purpose: to embody solutions and be synonymous with progress.

Let’s be clear: the aim of banking union is not to rescue banks in the event of turbulence, but to get the economy in the Euro Area properly financed again in order to support the economic recovery, which is taking off. It is a concrete achievement, benefiting the real economy, growth and European citizens’ protection. The Euro Area members opted to go further in sharing a common destiny, through their currency. This means complying with common rules and disciplines, but also, in parallel, building the joint solidarity mechanisms which naturally and essentially complement them. This is the prerequisite for Europe reordering its priorities and being an asset for its people.

France has worked relentlessly to get Europe to take this historic step. Thanks to François Hollande, France took the initiative for this banking union. Its national banking law made it a trailblazer. It fully played its role of injecting momentum, through the Franco-German engine – whose agreement isn’t enough but is always crucial. German Finance Minister Wolfgang Schäuble and I discussed this a great deal! We worked together on this with our Euro Area partners day and night! We didn’t necessarily see things the same way at the start.

But, in the end, we understood each other and were able to reach an excellent agreement. Mutual understanding, shared ambition and the ability to find the right compromise – these are what gives the Franco-German tandem its political strength. We demonstrated this once again in order to pass this historic milestone in the European project.

Meeting in Paris, the President and the German Chancellor reaffirmed on 18 December that we have a common objective, which is also a common agenda.
An essential step has just been taken in building the Community: banking union is an essential complement to Economic and Monetary Union. And, more than ever, the Franco-German tandem is conscious of its responsibility. I am proud, in my job, to have contributed to it. We still have much to do. But reordering Europe’s priorities towards growth, at the service of its people, is under way./.

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