The Europeans are trying to relaunch the construction of the single banking market

Proponents of European integration want to take advantage of the momentum created by the re-election of Emmanuel Macron and the presence of a new German government to push forward the banking union. This project for a single banking market, started after the financial crisis, had been stalled for several years, paralyzed by the opposition between the Member States in favor of risk pooling and the others, including Germany.

After months of negotiations, Paschal Donohoe, the Irish Minister of Finance who currently chairs the Eurogroup, was to present a two-phase roadmap on Tuesday evening, aimed in particular at advancing the sensitive point of this project: the European guarantee system deposits (EDIS), supposed to eventually replace the national funds which compensate customers up to 100,000 euros in the event of a bank failure.

In a first phase, a European fund would be gradually set up and would coexist with national systems, such as the Fonds de Garantie des Dépôts et de Révolution (FGDR) in France. The latter would continue to provide the interface with the customers. In a second phase, the European fund would play a reinsurance role for national systems by covering their possible losses.

“Eating an Elephant”

“If you want to eat an elephant, it’s better to eat it in pieces,” says a European source. On the basis of the compromise, the president of the Eurogroup hopes for a political agreement by the summer and a text proposal from the European Commission by the end of the year. An ambitious schedule that could allow the project to come into force in early 2025.

” The roadmap […] constitutes a satisfactory basis for discussion making it possible to envisage progress on the banking union, in particular in favor of a more effective banking crisis management system and better integration of the European banking system to promote the competitiveness of European banks while guaranteeing financial stability”, according to Bercy.

French banks (FBF) are clearly less buoyant. “The French banking profession believes that the banking union cannot be effective via the proposal to add a European deposit guarantee system (EDIS) to the current architecture. Such a system does not create an integrated single banking market, while nevertheless risking being costly for the players in the system, in particular French banks”.

It remains to know the position of Berlin. Like that of Angela Merkel, the government of Olaf Scholz defends a “holistic approach”, in which the mobility of capital, through the project of union of the capital markets, is as key as the guarantee of deposits. The two topics should be dealt with at the same time because “it’s like a car, with three wheels, it can’t drive properly”, according to a source.

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