The European Council on Foreign Relations

Hurray, the banking union is coming!

Date: 27th June 2012  |  Author: Ulrike Guérot,

Categories: Germany in Europe, Reinventing Europe,
Tags: banking union, euco, euro, euro crisis, germany

The forthcoming European Council is heading with unprecedented speed towards a banking union and historians may remember this as the turning point of the Euro crisis. The question is what kind of integration and how quickly it can be achieved. Proposals range from hybrid structures to a full integration of European banks and a common European deposit scheme.

As the EU Commission memo on banking union states: “The European banking union is not a new legal instrument yet. It is a political vision for more EU integration, which will build on recent major steps to strengthen the regulation of the banking sector and go further.”

The next EU summit could be a moment where political dreams come true, e.g. one of a European treasury with a Finance Minister, overseeing European banking policy, as advocated by former ECB President Jean-Claude Trichet last year, when he was awarded the Charlemagne Prize. Let’s hope that this historical window of opportunity is not dismissed during the next three days.

A banking union could entail the appointment of a finance minister with responsibilities in the areas banking oversight and crisis management coordination. Equally important is the creation of an adequate framework of accountability to European citizens through a properly empowered European Parliament that would comply with the principle of equal representation. We also need a proper representation of the member states – issues that Wolfgang Schäuble, Trichet’s successor in receiving the Charlemagne Prize, mentioned in his speech this year. Ultimately, the creation of a banking union would require making progress with the ‘political union’ project. That’s what Germany wanted for twenty years. Now, history is getting closer to it – but that’s also where the upcoming summit conclusions are still rather vague. This is probably why Angela Merkel has sharpened her voice ruling out eurobonds.

A banking union would definitely require agreement on sharing sovereignty, mutualizing risks and creating European-level accountability channels that would amount to creating a political union. And in Germany, a controversial discussion has started about how, if ever, this could be done and if it would require a constitutional referendum in Germany itself.

In other words, the discussion is now about how much utopia we can afford in Europe and, quoting Jürgen Habermas, the answer should be: a lot! “If you dry out the oasis of utopia, you get a desert of banality”. The political utopia of political union for Europe is important not so much to be achieved immediately, but to have a clear narrative for what Europe is striving for, namely bringing politics and economics together on a European level, because nobody - looking at the challenges of the 21st century - wants to remain stuck in the banality of an impuissant European nation state.

We need to rethink the notion of sovereignty which is no longer decision making power but implementation power. In that sense, most European countries are no longer sovereign anyway, because they cannot simply take the decision i.e. to not care about Greece or Italy. Germany has no “sovereignty” whatsoever to drop out of the story, even it wishes to do so. Striving for political oversight that would at least allow collective decision making and implementation power (e.g. for a tax regime in Greece) makes sense, this would allow us to break through the system of sovereignty instead of giving money without having access to control and implementation. That is where legal arguments in Germany that “more Europe” is not possible, fall short.

We do not need to build this European political union in a week, nor in a year – and even ten years would be a short moment for this Hercules tasks ahead. But we should seriously start thinking about that sort of “European revolution”, that would only allow Europe to engage into its historically game-changing moment, shifting the EU from a sui generis beast to a fully-fletched democratic division-of-power system on the European level, without war or civil war, but by consensual negotiation and treaty change.

The famous German constitutional lawyer Josef Isensee said this week that the shift towards debt mutualization – and a banking union is a step towards it – is not possible with some minor changes of the German constitutional law. This explains the current nervousness of the German president whether to sign the law that passes the ESM ratification through the German Bundestag. The closer the moment of the ESM vote comes – the vote is planned for Friday,  just in time for the EU-summit - the louder the critical voices get which argue that the legal possibilities for ‘more Europe’ are exhausted in Germany.

Beyond voting for the ESM, as the argument runs, a self-surrendering of the basic law is not possible, because of the so-called eternity clause of the basic law. But history cannot be frozen in law! If Germany should decide that it needs, in his own best interest, to take onto a different European future, this decision must be necessarily political, and then the German people should be able to strive for a “new start”. Wolfgang Schäuble has told SPIEGEL recently that a referendum about a new German constitution is no longer excluded and may happen earlier than expected. This is only some three month after he has said at a public event of the ECFR that such a discussion is not for now. Actually, history is accelerating!

The feuilleton of Süddeutsche Zeitung  is also convinced that a banking union can only come with new contours of a political union – but that the latter would never be achieved. I think the opposite is true: While both, Weidmannand Merkelare still warning against a too rapid introduction of Eurobonds and debt mutualization, the future architecture of the political union is already being negotiated. Merkel needs political conditionality for a common banking scheme; the tone is sharpening, but hopefully, given the density of the historical situation, the summit will come up with both: decisive steps towards banking union and clear commitments for a redefined democratic system of the EU. It wouldn’t be the first time that an EU-summit holds a positive surprise after the crudest moments of tensions.

The real question is rather how many years the EU will need for its fundamental reconstruction, how messy, shaky and potentially risky this game-changing process will be, how many EU-countries will go to the end of this process (and which ones will drop out) and whether such a European Republic ultimately comes through the back-door or through the front door of public opinion, meaning whether it comes with a ‘we must’ or with a ‘we want’. I personally would prefer the front door, but this would mean to become finally honest about the historical moment Europe is in: we are approaching the end of the European nation state in the way we knew it; and we are beginning to redefine sovereignty in a new way.

Perhaps we are closer to the end of the crisis than we think and nearer to political union than expected. Perhaps we are already beyond the tipping point with respect to whether or not we have turned a crisis into more integration- the answer may be yes, before most of us realise.