In an opinion piece published on Monday (13 May), Wolfgang Schäuble calls for a "two-step approach" towards a European banking union, writing that a limited "timber-framed" union, set up without changing European treaties, would buy time to create a future "steel-framed" union.
While today’s EU treaties provide “adequate foundations” for putting in place a new pan-European bank supervisor and a single resolution mechanism to wind down bankrupt banks, “they do not suffice to anchor beyond doubt a new and strong central resolution authority,” he writes.
The rescue of Cyprus has shown that shareholders and creditors need predictability when winding up a bank, he explains, saying “those affected will seek redress” and that “a solid legal base” was needed to address this.
This is not the first time that Berlin has called for changing the EU treaties to support the banking union. In April this year, Schäuble had already warned that the current legal basis for restructuring banks was "doubtful" and that a treaty change was needed to put in place the institutions required to police European banks.
“The EU does not have coercive means to enforce decisions. Its historical roots are young. Its democratic legitimacy could be improved upon. What it has are responsibilities defined by its treaties. To take them lightly, as is sometimes suggested, is to tamper with the rule of law,” Schäuble wrote in the FT.
In June 2012, European Union leaders committed to a banking union but since then deep cracks have emerged in the visions they have of the scheme, with Germany in particular raising doubts about its overall feasibility.
While the first step – to create a single bank supervisor under the ECB – looks set to be in place by mid-2014, a second pillar, a "resolution" agency and fund to close failed banks, is in doubt. And there is little prospect that a third leg, a single deposit guarantee scheme, will ever see the light of day.
But Schäuble doesn’t believe the steps taken until now are credible enough. “To rely on ad-hoc approaches until 2018, as foreseen by the draft European bank recovery and resolution directive, would be misguided,” he writes, adding that “credible EU bail-in rules” rooted in the EU treaties are needed “as soon as possible.”
Changing the Lisbon Treaty, which underpins the bloc's law, would be a drawn-out process as it calls for the agreement of all member states - some of which require referenda.
"Amending the treaties takes time,” the German finance minister admits. A two-step approach, he continues, could start with a resolution mechanism based on a network of national authorities.
"Instead of a single European resolution fund – which the industry would take many years to fill – such a model would lean on national funds, which already exist in several member states," he wrote.
"A banking union of sorts can thus be had without revising the treaties ... this would be a timber-framed, not a steel-framed, banking union. But it would serve its purpose and buy time for the creation of a legal base for our long-term goal: a truly European and supranational banking union."
"Limited treaty changes would not just provide a safe legal base for a European resolution authority; they could create a better separation between supervision and monetary functions in the ECB," Schäuble wrote.