Econintersect: No sooner was the agreement announced in the early hours of 13 December to create a centralized bank supervisory agency for the 17-country Eurozone than ECB (European Central Bank) president Mario Draghi (pictured) was pushing for an expansion of his powers. The agreement is actually only the first step, and perhaps one of the easiest, in creating the final regulatory structure for Eurozone banks. The next step is to define a resolution authority to handle the dissolution of insolvent banks, something similar to the FDIC in the U.S.
Draghi's statements amount to a demand that the resolution control be established almost immediately under the control of his organization (ECB) and indicate his confidence that it will be accomplished, all in the same breath. But the progression Draghi prescribes is not necessarily written on the wall. There is an agreement but what it actually means is still not clear. From today's GEI News:
Although the new supervisor will be implemented in early 2014, no date was set for the control of the supervisor to be taken over by the European Central Bank (ECB). However the ECB will have the right to intervene in any specific bank on an individual case by case basis should it deem such action necessary.
The toughest final hurdles involved resolution of differences between France and Germany and over the question of how voting rights of member countries would be distributed between the large and small countries of the Eurozone.
There is some ambiguity in the agreement. According to the Financial Times it is not clear if the ECB will assume all control of Eurozone banking or if the banking system in Germany would remain significantly under German regulation, creating a "two-tier regime." The uncertainty derives from the size of banks to be regulated (larger than €30 billion [$39 billion]). This covers nearly all the banks in France but not a large number of German institutions.
At the center of the arguments and the uncertainty is the question of national sovereignty. From an interview with the Financial Times, Draghi had the following to say:
I’d like to give you this quote of Professor Zygmunt Bauman, a Polish sociologist who has become best known for his analyses of postmodernity and consumerism. It has to do with the fact that you don’t lose sovereignty when you share it, but you actually regain it. Countries with high debt and deficits should understand they have lost sovereignty a long time ago over their economic policies in a globalised world. Working together in a stability-oriented union actually means to regain sovereignty at a higher level.
Draghi expanded on that statement by saying the sovereignty concern is a mirage because the sovereignty in question was lost "a long time ago" to the markets. The troubled countries have been "pretending to have sovereignty" according to Draghi.
Editorial note: Econintersect agrees with Draghi in this assessment. There is an element of pretention here in that the Eurozone countries have continued to fail to recognize that they abandoned monetary sovereignty with the adoption of a common currency and that has significantly reduced many elements of effective fiscal sovereignty. The euro countries have masqueraded as sovereign states and it is past time for the masks to be discarded. If not, the countries must leave the ball.
Click on the graphic below for a video at the Financial Times in which Draghi outlines what he views as progress in advancing the Eurozone in 2012.
- Graghi's rallying cry for new EU powers (Michael Steen and Lionel Barber, Financial Times, 13 December 2012)
- Interview with Mario Draghi (Lionel Barber and Michael Steen, Financial Times, 13 December 2012)
- Bank Regulator Agreement for Eurozone (GEI News, 13 December 2012)