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January 2, 2014

Delay and Pray Is the European Union's Specialty

“Europe’s much-hyped push for a banking union turns out to have been little more than a stall tactic. Even the European Union’s most die-hard apologists would have to concede that is the only achievement of the flaccid proposal offered this week.
Since mid-2012, Europe’s leaders have said many times that they are on track to create an integrated financial framework and break the bank-sovereign nexus, which is the vicious circle that ensues when weak banks hold lots of their home countries’ sovereign debt and both start spiraling downward together. EU lawmakers and European Central Bank President Mario Draghi have cited three core needs for a banking union: a single supervisor to oversee the euro area’s largest banks; a single resolution mechanism for restructuring or closing failing banks; and a common system for deposit insurance.
Europe undoubtedly needs a unified banking system if it’s going to achieve a genuine economic and monetary union. The question all along has been whether this was anything more than a fantasy. As an elaborate exercise in can-kicking, the promise of a banking union has helped buy the EU time, the importance of which shouldn’t be underestimated.
Yet time is running out, at least on this particular dilatory contrivance. Even Draghi and ECB Vice President Vitor Constancio cast doubt this week on whether the EU’s latest resolution proposal would work. The EU’s finance ministers decided to proceed with it anyway and declare victory.”
Read the full Bloomberg story here
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