Unified we'll go

History

The length of a meeting is usually a good indicator of how serious an issue is. Tough decisions are taken slowly and carefully, after they have been mulled over several times. This is how the European Union worked up until a year ago. But that’s no longer the case: in the past six months marathon meetings have been followed by snap agreements, taken at an unusually fast pace. Take the banking union: the need for a single supervisory mechanism (SSM) over European banks was first officially expressed at the June summit and, barely six months later, the deal was struck.

After a 14-hour discussion, European finance ministers nodded on the launch of the system early morning Thursday. As of March 2014, the European Central Bank (ECB) will have the right to police some 150-200 banks in the eurozone, the biggest ones. The agreement was reached fairly quickly but that doesn’t mean it was not surrounded by heavy opposition. The biggest question was whether to expand supervision over all 6,000 eurozone banks and, if not, which ones to include. Because of the different bank structures in the two member states whose opinion matters the most, Germany and France, standing on the threshold that would qualify a bank as big ranged from €2.5 billion to €50 billion. Finally, the EU’s proposal, €30 billion was the winning bid: banks with €30 billion consolidated balance sheet or with balance sheets accounting for 20% of the country’s GDP are regarded as big.

This way German saving banks have been ‘spared’ from being included – a major concern voiced by Germany. The French on the other hand were keen supporters of total supervision having big banks mostly. Those remaining outside the banking union should not feel abandoned either. Since banks in Europe have outlets cross-borders, the ECB will oversee everyone in some way. If it is a daughter whose parent is supervised by the ECB (that is, is a big bank headquartered in the eurozone) the Hungarian Financial Authority (PSzÁF) will continue to oversee it but in close cooperation with officials designated by the ECB. If it is a subsidiary, as is ING in Hungary, the watchdog role remains in PSzÁF’s hands but officials coming from the Dutch center will be wearing an ECB uniform. In the case of small banks, like OTP Slovakia, the Slovakian National Bank will practice supervision and will invite PSzÁF. So the staff basically remains the same, what changes is on whose behalf they arrive. The only Hungarian bank that may be concerned is OTP, with a balance sheet of 24% of GDP.

Once the SSM is set up, the immediate priority is to finalize the legal framework and get the backing of the European Parliament. This is going to be harder than expected as the Parliament would add strong social dimensions to the package: the EP clearly stated that its support depends largely on that. The Parliament welcomed the principles of the banking union but legislation to back this system is needed, EP President Martin Schulz said, which will probably take time.

Another time-consuming element is the delegation of tasks. The ECB must hire staff and decide how to carry out its mandate. Officials calculate that supervision of a few banks would require more than a hundred, well-qualified person. As a result, the system is not expected to be fully operational before March 2014 at the earliest.

Clearer than timeline is the content of the package: much of it has gone along the German needs, for example the exclusion of small banks from supervision. The German way also translates into quality over speed: Chancellor Merkel would first put the house in order and only after that would she (Europe) think about consolidation. The establishment of fiscal capacity – funds attached to structural reforms provided to member states under individual contracts – initially proposed by the German is also further on the agenda. No one will be left behind though: countries on the verge can count on being saved. From a Hungarian perspective, the way things are shaping is positive, the later supervision becomes operational, the better for us, Hungarian officials noted.

Time-lag will apply to the rest of the countries too, regardless of the size of their banks. Though decision on the first step was taken fast, those that follow will take time.

 

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