The manageable risks of the European Banking Union

SWOT analysis, drafted on Dec. 16, published onDec. 19, 2012

Noah denkt™ welcomes the European Banking Union (EBU) that has been put on the way at last week’s European Union summit in Brussels. Obviously, there are risks attached to the introduction of new pan-European authority. But these risks are, in our opinion, manageable as long as all parties concerned, i.e. the European public, the European governments, banks and the ECB itself, are aware of them. These risks can be described as follows. 

First, the administrative challenge: Will it be possible to organize the supervision in such a way that the European Central Bank as in institution is not overwhelmed with the sheer number of banks (3000, let alone 6000 as originally suggested by France) that it will have to oversee from now on, on a continuous basis. Clearly, it poses quite an organizational task for any institution to develop a coherent and effective in-house program that throughout all the departments and subdivisions adheres to the same standard of diligence, the same standard of soundness and the same standard of administrative rigor. It will certainly take a strong President of the ECB as well as a powerful and congenial department head to impose a unified vision of what that supervision should in effect look like.

Secondly, the cultural challenge: Will the ECB be able to communicate effectively to all the different banks in the different countries that operate under different jurisdictions and with different local languages? Or will be there be some kind of subterfuge on the part of regional banks when it comes to implementing the restrictions and provisions that have been imposed by a far way controller in a far away institution? Obviously, compliance with ECB procedures will first require the actual acceptance of that ECB’s authority by the local bank. This acceptance, however, of a non-national authority is by no means guaranteed. Just witness the Greeks’ less than honorable track record in reporting economic data to Eurostat inBrussels. And witness also Eurostat’s reticence in double checking those numbers which it, right form the start, perceived to be suspicious. In other words, European institutions are faced with a very real deficit of recognition when reaching down to the local and regional levels. And, unfortunately, it is not only the wayward recipients of pan-European decrees in the provinces who perceive this lack of legitimacy that surrounds the European institutions, no, even the European technocrats themselves suffer from a certain degree of disbelief and insecurity when trying to make their weight felt.

All this, obviously, has a lot to do with our third political, i.e. nation-state, challenge:  After all, the sad truth of all European institutions is that they are in a limbo between the old nation-state concept of European politics and the as yet unfinished idea of a European unity that would have overcome the limits of the earlier parochial reality. The European Banking Union will have to operate in that limbo. In other words, it will have to deal with the fact that people are quite ambivalent in their allegiance to it. That in turn means that ECB clients and their political representatives will be just as happy to support the banking union whenever it suits their needs but that they will be equally ready to question the EBU’s work whenever opportunity seems to dictate that. To cope with that the ECB will have to have very forceful in its daily dealings with the banks. Luckily, it has a good chance to achieve that largely because of the money printing ability that it has at its disposal. So, in conclusion, it does make sense to embark on this EBU adventure, if only to substitute the danger of exuberant local patriotism with a still nascent pan-European hope.

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