With the Eurozone's unemployment rate down to around 10.6% after being rattled by the crisis in Greece and Spain just several years ago, the European parliament is putting finishing touches on a banking union designed to avert another crisis from happening. They want to create a common currency and central authority so that member nations can share the risks and responsibilities. However the resolutions put together seem to fall short of making any real difference. For instance, they've put together a Single Resolution Fund worth 76 Billion Euro to recapitalize banks in an emergency. This may seem like a lot of money, but not when put into context. Some of the single largest banks in Europe have assets exceeding 1 Trillion Euro. In addition, the banking union was supposed to guarantee deposits to prevent runs on banks such as the ones that happened in Greece in Spain. However, individual countries already have their own deposit insurance policies. This means that a euro could potentially be valued differently in two separate countries in Europe which is exactly what the parliament doesn't want. The new banking union regulations fall very short of making significant and meaningful changes to the Eurozone's banking sector and should another crisis arise, they would be unprepared yet again.
http://www.businessweek.com/articles/2014-04-24/europes-deeply-flawed-banking-union
I think that the idea of having a European banking union is good, the sharing of responsibilities by multiple European countries will decrease the probability of the occurrence of another crisis. Creating an effective banking union will be no easy task. As of now, the single resolution fund of 76 billion euro's doesn't provide enough funds to recapitalize multiple banks in the case of an emergency. Also the fact that several countries have their own deposit insurance policies indicates that the euro may be valued differently in separate countries, which is what is not desired. It appears that the banking sector in Europe still has some way to go before it achieves its goals.
ReplyDeleteI think that the biggest problem facing the Euro is that there is way too many countries using it. I think that it is going to take a long time before the Euro can become a stable currency with all the countries. But for now, I feel that the Euro has yet to mature like the dollar and is still problematic because some countries don't want to share the risk like Germany.
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