Banking union inevitable – and inevitably imperfect
Jose Manuel Barroso says he has no magic wand. Pity – it would be handy in current circumstances.
But the President of the European Commission can only rely on human ingenuity to get by. That's tough for a man who has been living in crisis mode for years and probably feels his ingenuity has been stretched to breaking point. I suspect he empathises a great deal with Sisyphus.
Today, Mr Barroso is due to deliver one of those periodic "state of the union" addresses to the European Parliament in which he will be expected to demonstrate that the EU as a whole has got a grip on the financial crisis. That is not an easy message to convey. The EU has been attempting to grip the financial crisis for years. Its success has been limited. Its grip is dodgy at the best of times. But you have to try.
The Greeks and Spaniards are going through hell, the Irish are in misery and even the UK, supposedly safe outside the eurozone, is suffering the agonies of non-existent growth and austerity, both exacerbated by the problems across the Channel.
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Grip is essential for us all, so today Mr Barroso will try (again) to grip. He has no magic wand, so he will offer MEPs a banking union instead.
This is his thesis. The eurozone needs a banking union. National regulators failed spectacularly. They did not foresee the financial crisis, they took minimal or non-existent preventative measures and they failed to nip the crisis in the bud by descending like a ton of bricks on those banks that got into difficulties. Contagion therefore spread.
Mr Barroso's solution is to hand responsibility for overseeing all 6,000 eurozone banks to the European Central Bank. This will have the power to wind down failing banks, regardless of the views of national authorities.
There is a theoretical logic to this, but logic and political deliverability are two quite separate things.
Germany, which cannot forget that it is picking up the tab for the financial irresponsibility of its neighbours, fails to see why the banking union should supervise all banks. Berlin would like it to supervise only banks that are too big to fail – banks whose collapse would result in German taxpayers forking out once more.
Here at home, David Cameron and George Osborne twist and turn. Although they flatly refused Mr Barroso's earlier proposal of an EU-wide banking union covering the UK, they recognise that to function properly, the eurozone has to integrate more. At the same time they fear, rightly, that such integration would marginalise the UK and they don't know how to respond.
They are deeply wary about how such a muscular EU-wide banking authority would impact on the City of London and yet they are desperate for the eurozone to stagger to its feet.
According to Mr Osborne's analysis, it is only the eurozone that is killing off his marvellous plans to get the UK going again. One can dispute that analysis, but it illustrates the bind in which London has got itself.
Political obstacles aside, Mr Barroso's plan possesses other flaws. It is not obvious, looking back at the ECB's record since the crisis began, that it would prove any more prescient than national regulators. It is true that ECB president Mario Draghi is currently basking in the glow of adulatory headlines and market euphoria for his supposedly dazzling plan to save the euro. As long as troubled countries agree to terms set by the ECB and the International Monetary Fund, Super Mario has pledged to buy unlimited amounts of their bonds, easing the pressure upon them. The ECB, of course, has no money of its own. What Mr Draghi is promising is to shovel yet more German money into the likes of Spain and Greece, a tactic upon which many German taxpayers will have trenchant views.
His offer also flings down a challenge to the markets, which can turn viciously. His pockets may be deep with other people's money, but the market's pockets are deeper. He is a lion tamer locked in a cage, relying on bluff.
There is no perfect solution. A banking union is inevitable. It will still suffer from human foibles and it will impact on the UK, come what may.
If only magic wands existed.
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