Denmark considers joining EU’s banking union

Denmark Copenhagen.jpg

Eurozone outsider Denmark may be compelled to join a proposed European banking union if it succeeds in boosting the credibility of euro area banks, said the head of the Danish central bank, Nils Bernstein.

European commissioner for the single market, Michel Barnierpresented his plans on Wednesday (12 September) for the European Central Bank to supervise all eurozone banks in a first step towards a banking union in Europe.

"The framework is directed first and foremost to the euro countries, but with access for non-euro countries to join," read a statement from Bernstein, the governor of the central bank.

"If the framework is established, it could well lead to a strengthening of confidence towards the banking sector of euro countries, which could make it difficult for Denmark to remain outside," Bernstein said.

From that point of view, Bernstein said, it was important for Denmark to engage in constructive talks over the Commission's proposal with a view to establishing an effective framework and securing equal treatment of all participants.

Germany immediately raised objections that the proposals risked overstretching the ECB.

Bernstein said it was unknown at this point whether European countries would support the proposal for the pan-European supervision of banks, including putting the ECB in charge of granting and rescinding bank licences.

London is worried that the ECB, emboldened by its new powers, will demand regulation that could undermine the city's position as Europe's de-facto financial capital. Similar concerns are shared by Denmark and Sweden.

Denmark's Nationalbank runs a fixed exchange monetary policy aimed at keeping the Danish crown currency steady within a narrow band to the euro. 

EU leaders decided at a June summit to create a common banking supervisor as part of a deal that would allow the bloc’s rescue funds to directly lend funds to stricken banks instead of passing aid through countries and adding to sovereign debt problems.

It is a first step towards a banking union and part of wider moves towards fuller economic and political integration which they judged necessary to break the vicious circle driven by the eurozone debt crisis which has brought the region’s economy to a standstill.

The European Commission tabled proposals for a banking union on 12 September. The reforms included giving the European Central Bank supervision of all eurozone banks.

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