Michel Barnier: “We set up the banking union in record time”
The French Commissioner for Internal Market and Services, Michel Barnier, published a book titled Se reposer ou être libre (to rest or to be free) on 17 April. He spoke with EurActiv about reforming the European banking system.
Why did you choose this title for your book?
Europe has to make a choice: be a continent that consumes products manufactured by other countries like China, or to become the master of the instruments which will allow us to control our own destiny.
There are areas in which we risk losing our freedom, but also where we can keep or regain this freedom if we work together. Therefore I methodologically examined seven or eight areas where, through the implementation of new policies, we can reclaim our freedom as Europeans, as a producing and independent continent. For example, in the area of energy.
You were not chosen as the right’s candidate for president of the Commission. Are you paying the price for your centrist tendencies in the UMP?
The UMP and its president, Jean-François Copé, were incredible with the support they gave me during my campaign, at the heart of the EPP. Jean-François Copé stood in front of the congress and said it. All French MEPs, including some centrists, showed up to bring their support. I achieved 40% of congress’s vote. I do not regret provoking a democratic choice and now that it is done, I support our candidate.
How do you feel about the UMP’s shift to the right, in particular regarding the local elections, and Jean-François Copé’s appeal to the supporters of the National Front?
The UMP’s policy is extremely clear during these elections. We refuse all alliances and talks with the National Front. If we listen to voters who vote for the extreme left or right and who are tempted by populist movements, it is only because it is a politician’s duty. We must try and understand why people vote for the extremes.
Are you tempted by the centrist alliance for the European elections?
I have always been Gaullist and European, in a political party which has not always been the most pro-European, but where I feel at home. I believe that the republican and European right must be connected to a strong centre. This is how France’s alternative will be created, and it must be prepared. In my book, I try to explain how we can be patriotic and European, and that what is at stake today. What politicians of the right and the left must explain, is the independence and freedom of Europeans and their children in tomorrow’s world.
I tried to describe what must be done in the next five to ten years in order to preserve our freedom. That is how serious it is. In 2050, there will not be a single European country in the G8.
An agreement was reached in March on the Single Resolution Mechanism (ESM), which will be financed with over €55 billion. Can we claim today that the banking union has been completed, as European leaders promised in October 2012? What is left to be done?
We set up the banking union in record time. It was in April 2012, only two years ago, that President Barroso proposed advancing financial and banking integration. This idea can be found in the report from the four presidents of the European Council of 29 June 2012. In September, I presented the first part (the supervision) which was adopted in March 2013. In July 2013, I presented the second part (the Single Resolution Mechanism) which was agreed on in March 2014.
Therefore, in less than two years we revolutionised the banking sector. We can now prevent, supervise and deal with crises together. We broke the vicious circle between sovereignty and banks, and now have banks that live and eventually die at a European level.
Now we must ensure that it is put into practice and becomes operational. Decisions have been made, and the European Central Bank should be ready to supervise the 6,000 banks of the Eurozone by 4 November 2014. We have also set the timeline for the Single Resolution Mechanism.
Exactly. The €55 billion for the Single Resolution Mechanism will not be available before eight years, time to allow banks to contribute to the fund. What will happen if a bank fails following that year’s stress tests? Will taxpayers be put at risk?
We will deal with all future crises with the mechanism, not just those from yesterday or the day before. Therefore, if there are difficulties, restructuring needs or financing needs following “moment of truth” tests by the ECB and the EBA, we will cope with them using today’s instruments. Actually, banks have been restructuring over the past four years. They have recapitalised by hundreds of billions of euro over the past five years.
So the risks have been reduced?
I think the European banking sector is more robust. Above all, the objective for the future is that there are less possible bank failures, and that we reduce the risk of failures. Banks will be more effectively supervised, governed and capitalised thanks to legislation that we have worked on for four years, and that are now operational, or soon to be.
Will there ever be another crisis? I cannot answer that. If there is a crisis now, we will have the tools to solve it. The resolution mechanism will be put in place in 2015, and operational in 2016. If there is a crisis at the start of the mutualisation period, the resolution mechanism will be able to lend money.
There will be a lack of funds in the beginning. Therefore, failed banks will have no choice but to turn to states, and therefore, to taxpayers…
I cannot honestly say “never again”. We did all this work to cut the link between taxpayers and banking crises. This takes time. All eventual banking crises will continue to be managed by states, while the new regulations become operational. However, states are requested to converge more and more with the agreed resolution principals, including that all losses be covered by shareholders and creditors, and not by taxpayers. This already allows for the revised guidelines regarding state aid to banks adopted last August. From 2016, the European Resolution Fund will be able to borrow from markets in favourable conditions. It will also be able to raise contributions from banks from the very beginning. It will be totally operational 8 years later.
Concerning the banking crisis, we saw how the financially strong states – led by Germany – were important during negotiations, and protected their financial interest. Did the crisis not reveal the egoism that remains at the heart of the EU?
One can read into it pessimistically. You can also say that what the crisis revealed from the start (beyond the weakness of our tools and the lack of prevention regulations or mechanisms) is that Europeans lost trust in each other. We have partially rebuilt this trust, notably with those who contributed most to the solidarity of the European budget or the ESM, such as Germany, the biggest of them all. Discussions were difficult. You wouldn’t give your credit card and your pin code to someone without trust, would you?
What we gave Germany in return, as you said, was the budget treaty, the 6-pack, the 2-pack, etc…
And the banking union! These are tools for mutual trust. But it is the foundation! It is the necessary groundwork for the euro to function, to mutualise, for the rich to help the others, to work together. It is also the foundation for the future mutualised lending scheme though Eurobonds. Trust is the foundation, but it had almost completely disappeared. And we have rebuilt it.
Whilst the worst of the crisis is behind us, some countries like France are on course to miss their deficit reduction deadline. Should the Commission propose sanctions against France?
That is not relevant to today. The Commission launched a surveillance procedure, because it questioned the way in which France carried out its structural reforms. Substantial efforts were observed in several areas, including the job market and pensions, but it has to go further still. The procedure that we launched is above all a dialogue.
It does seem that France and the Commission are playing hide-and-seek. France’s budgetary forecasts do not match those of the Commission…
There is no hide-and-seek because the rules are clear. The Commission has extremely demanding dialogues with each and every one of the member states, dialogues without deference but also impartial and objective. It will carry out its work objectively.
France was one of the first countries to request an economic government for the Eurozone. We are putting this in place. It has advantages, indeed it gives assurances, guarantees... but it also has constraints.
You said yourself, the crisis since 2008 has emphasised all European weaknesses regarding regulation, governance, financial shortcomings, high public debt and low competitiveness. The European institutions and the European governments must do their job.
Therefore, will it eventually boil down to sanctions against states that do not respect their commitments, even if we are dealing with “big countries” like France?
This has to do with the application of communal rules, to which everyone signed up to and which is in the interest of all countries and the common interest. For France and the others. No one asked France to have 40 years of budget deficit. Indeed, successive left and right governments are to blame.
Are you happy with the new architecture of European economic governance? The 6-pack, 2-pack, budgetary treaties, it is all a bit complicated for the layman… Are there elements that you would change?
Of course there are elements that need to be changed, and lessons to be learnt. For five years we acted with our backs against the wall, in urgency, and sometimes with adjustments. I was one of the first to say that we had to differentiate between the efforts that were required. Too much rigor and austerity can kill economic growth. Hence, one must know how to differentiate by country and time period. We are doing this now.
One day there should be a president of the Eurogroup who is also vice-president of the Commission, so that we have a system which is parallel to foreign political systems. We also need changes to the treaties for the Eurozone to work better and be more democratic.
Most of the mentioned emergency measures were carried out without democratic debate. Was this ideal?
There was urgency. The crisis did not ask for permission. In 2008, when we were faced with collapse (Lehman Brothers and others) the world financial system almost exploded. There was an urgency to learn lessons from our weaknesses. In response, we created an economic, budgetary and banking union. I think we should go further and also have fiscal and social union one day.
The inner workings of the Troïka are particularly questionable.
No doubt there are methods that need changing and lessons to be learnt. But the Troïka is composed of institutions that have a mission, and whose proposals were approved by European institutions and national governments. We must remember this.
Do the traders of the City of London not deserve some sort of Charlemagne prize for their assistance to the EU, given that the crisis forced the economic and budgetary union to progress on the double?
This is true, but the traders in question caused the crisis. No supervision of toxic products, insane bonuses that encouraged them to take risks… 11% or 15% of European GDP has been dedicated to saving the financial system. That is enormous. If you are trying to get me to say that we learnt lessons in order to be stronger after than before, then, yes. But at what cost? In order to create a satisfactory democratic system we need financial stability. That way, states will not depend on financial markets.
Interviewed by Frédéric Simon