Nicolas Véron

European Banking Union Tentative Assessment (Le Monde, in French)

This article was published on January 16 by Le Monde (link) as the first of a special section that also included contributions by Martin Schulz, Laurence Scialom, Thierry Philipponnat and Marie-Anne Barbat-Layani. 

Un grand pas pour l'Europe, mais le déficit démocratique demeure

Le 18 décembre, les ministres des finances européens ont annoncé un accord sur la mise en place d'un mécanisme de résolution unique (MRU) pour le traitement des crises bancaires. Certaines réactions présentent cet accord comme l'achèvement de l'union bancaire, d'autres comme un compromis impraticable. Cette apparente contradiction est révélatrice de la nature du projet d'union bancaire : radical et de long terme. Le MRU n'en est pas le point d'aboutissement, mais il illustre le chemin parcouru depuis son engagement en juin 2012.

Qu'est-ce que l'union bancaire ? Dans sa définition la plus simple, l'expression désigne le transfert au niveau européen des instruments de politique publique relatifs au secteur bancaire, en particulier la supervision, la résolution des crises et la garantie des dépôts.

La motivation est de rompre le cercle vicieux entre finances publiques et systèmes bancaires nationaux, identifié en 2011-2012 comme un facteur-clé de la crise de la zone euro. Sur le premier point, un mécanisme de supervision unique (MSU) a déjà été décidé et prévoit un transfert d'autorité, cette année, du niveau national vers la Banque centrale européenne (BCE).

La relation entre banques et Etats est au coeur du développement historique des économies européennes. Son transfert au niveau supranational est un changement structurel de grande ampleur et soulève la question du pouvoir politique, fiscal et budgétaire au niveau européen. Le président du Conseil européen, Herman Van Rompuy, a raison de suggérer une « union quadruple », bancaire, budgétaire, économique et politique, pour résoudre la crise.

UNE UNION FSICALE PARTIELLE ET DÉGUISÉE

Mais le débat sur l'union budgétaire et politique est gelé par la frilosité de nos gouvernants, le manque de confiance entre Etats membres et la difficulté de modifier les traités européens. Tant qu'il en est ainsi, l'union bancaire ne peut être qu'une construction incomplète. Toutefois, même inachevée, cette construction est un progrès majeur. L'union monétaire est rendue bien plus solide par une union bancaire même partielle.

Le MSU est à lui seul un gigantesque pas en avant pour la stabilité financière européenne. En comparaison, le MRU, dont les attributions se situent en aval du MSU, apparaît nettement moins convaincant, avec ses procédures hybrides entre Etats membres et Union européenne (UE), sa complexité byzantine, et sa mise en application conditionnelle et étagée entre 2015 et 2025. Le discours politique s'est focalisé sur la résolution des crises bancaires « à coût budgétaire nul », en faisant payer les créanciers et les banques elles-mêmes.

En réalité, une contribution imposée aux banques, comme l'impôt sur les sociétés, est une taxe, même si elle n'est pas directement prélevée sur les ménages. Elle revient à créer une union fiscale et budgétaire partielle et déguisée, d'où la méfiance compréhensible de certains gouvernements. Quant à faire participer les créanciers, l'intention est bienvenue, mais sa mise en oeuvre sera difficile.

Depuis le début de la crise, les gouvernements européens ont été beaucoup trop généreux avec les créanciers des banques, qui ont bénéficié d'un attachement excessif au maintien des champions bancaires nationaux. Mais, dans certains scénarios de crise aiguë, l'intervention publique est justifiée pour arrêter la panique. Le but est donc de trouver un meilleur équilibre en imposant une discipline fondée sur des incitations plus saines ; mais cet équilibre sera défini par la pratique des années à venir, autant, sinon plus, que par la législation en cours de discussion.

L'ACCORD EST UNE ÉTAPE

Les Etats-Unis ont une meilleure discipline de marché sur ce point et ont pu fermer des centaines de banques depuis 2007 en imposant des pertes importantes à leurs créanciers. Mais leur système est lui-même loin d'être parfait, et il a fallu des décennies pour en arriver là. Le retard européen sur ce point ne sera pas comblé en une seule étape. A court terme, l'essentiel est ailleurs.

La mise en oeuvre du MSU requiert une revue des bilans des banques qui passent sous l'autorité de la BCE. Certaines de celles qui seront identifiées comme sous-capitalisées devront être restructurées par les autorités publiques nationales, bien avant la mise en place opérationnelle du MRU. C'est là que se joue le sort de l'union bancaire.

Si la revue des bilans manque son objectif de rétablissement de la confiance, il n'y aura rien à attendre du MRU, et la zone euro rechutera sans doute dans la crise. Mais si l'exercice s'achève avec succès fin 2014, l'héritage des échecs passés ne pèsera plus sur les négociations européennes comme aujourd'hui. Dans ce nouveau contexte politique, il n'est pas impossible d'imaginer que les questions de fond sur la responsabilité et la représentation, en d'autres termes l'union politique, puissent être abordées de manière renouvelée.

L'accord du 18 décembre n'est donc qu'une étape, et pas la plus importante, sur la longue route vers l'union bancaire en Europe. La question centrale, comme l'indiquent les intentions de vote aux élections européennes de mai, reste celle du déficit démocratique de l'Union. Sans mandat démocratique, les institutions européennes, Conseil inclus, resteront grippées par leur déficit de capacité exécutive. Et sans cette capacité, l'union bancaire est condamnée à rester inachevée.

 

Outlook for 2014 (Caixin)

This article was published in China 2014, a special issue of Caixin Magazine (Chinese version here). It was also republished by Bruegel and the Peterson Institute. 

2013 has been a remarkably calm year in Europe, arguably the calmest since the onset of the financial crisis in 2007.

The year started with two significant events that under different circumstances could have shaken financial markets. First, in, Italy, the euro area's third-largest country, an election in February elevated an almost unknown political force, the Five Star Movement led by comedian Beppe Grillo, to the top of the political landscape on a platform rejecting the country's mainstream parties and European commitments. Second, in Cyprus in March, a combination of inadequate risk management in local banks and a bungled European policy process led to the imposition of capital controls despite the fact that such controls contradict the ground rules of the euro area monetary union.

But global investors were largely unperturbed by these two shocks. They were reassured by promises from European policymakers in 2012 to do "whatever it takes" to defend the integrity of the euro area, including through the creation of a European Banking Union and the possibility of massive purchases of sovereign debt (known as Outright Monetary Transactions, or OMT) by the European Central Bank (ECB). Later in 2013, investors shifted their focus to the exit from quantitative easing and paralyzing fiscal battles in the United States. The turmoil in emerging markets during the summer was also a distraction from Europe, which suddenly appeared less troubled than other parts of the global economy. Several European politicians declared that the worst of the European crisis was over.

Several reasons suggest that 2014 will be a bumpier year for Europe, however.

First, the implementation of the first phase of banking union, with the transfer of supervisory authority over most of Europe's banking system from national authorities to the ECB, involves an assessment of the banks' financial soundness, known as asset quality review (AQR). This review will probably expose previously unrecognized weaknesses in some banks, possibly requiring public intervention and restructuring, accompanied by political tensions.

Second, the banking union will remain incomplete. Member states are unlikely to agree on a workable design for its two other necessary components, a European authority empowered to resolve crises over troubled banks and a European deposit insurance system. The realization that banking union is essentially limited to supervisory integration at the ECB may reawaken investors' worries about the vicious circle between banks and sovereign credit that destabilized the euro area in 2011 and early 2012.

Third, the combination of the delay in restoring the banking system back to soundness, fiscal austerity, and the ECB's continued reluctance to engage in unconventional monetary policies, suggests that the European economy will remain anaemic. Growth performance could be dampened by the failure of Italy, France, and other countries to undertake structural reform.

Fourth, the European Parliament election in May 2014 is expected to crystallize citizens' dissatisfaction with their current governance in most countries outside of Germany, sending shockwaves throughout Europe's political establishment. For example, the xenophobic and anti-establishment National Front is predicted by many to become France's leading party in that election. Comparable trends are observable in the United Kingdom, the Netherlands, and other EU member states.

How Europe's politicians and policymakers will react to such developments could range from further paralysis of decision-making to the jolts provoking more boldness to reform.

A renewed debate on Europe's institutional mismatches is likely over what European jargon refers to as "political union" as a necessary complement to banking union, fiscal union, and economic union.

EU institutions, as currently defined by the European treaties, are too weak to deal with these problems. The European Commission has shrunk in stature during the crisis, lacking the policy leadership that had been assumed to be its defining ability, except in specific areas such as competition policy, and hobbled by a (not entirely undeserved) reputation as an overpaid and inefficient bureaucracy. The European Parliament has less control over the power of the purse than most national legislatures. Too many of its members lack dedication or gravitas. It is insufficiently representative of the European electorate: In particular, the number of parliamentary seats is not proportional to member states' voting populations, and electoral processes vary widely across countries. The European Council of national heads of state and government is unaccountable as a collective body, even though each member is democratically accountable to national constituents. There is no mechanism to endow it with a political mandate to channel the preferences of the majority of European citizens. This lack of legitimacy has repeatedly paralyzed it when decisive action was needed.

In summary, the core EU institutions—the Commission, Parliament, and Council—are affected by a combination of democratic deficit, or the lack of proper representation and accountability to the European citizenry, and executive deficit, or the inability to make and implement policy decisions at the right moment. These twin deficits perversely feed each other, sapping the European Union's popularity in many countries.

The ECB stands in contrast to the other institutions' ineffectiveness. In several instances, it has filled the European Union's executive vacuum and saved Europe's day by making bold policy commitments while generally maintaining its credibility. As a consequence its authority has increased through the crisis, not least because of its new supervisory tasks as a first step towards banking union. But its independence also means that it cannot rely on a democratic mandate based on the public's consent. Trusting it with too much policy power and no corresponding accountability may not be sustainable. The ECB is acutely aware of this risk and limitation.

Simultaneously, the crisis has exacerbated centrifugal forces kept in check in previous decades. For example, the United Kingdom has entered uncharted territory by openly contemplating its own exit from the Union. The United Kingdom also faces a forthcoming referendum on Scottish independence, as does Spain with the exacerbation of tensions between Catalonia and the central government in Madrid.

To be sure, countervailing forces of cohesion should not be underestimated. The euro area has preserved its integrity so far, against widespread predictions in early 2012 that Greece would leave the monetary union during that year. Even so, a British exit would transform the nature of European integration and may disrupt Europe's future.

Germany's dominance of intergovernmental decisions raises particular concerns. German preferences are often enlightened, but they also occasionally reflect German prejudices or parochial special interests. Citizens of other countries feel increasingly disempowered, with some justification, even if Germany is restrained in the use of its outsized influence. The French-German "couple" used to bring a degree of balance. But it can no longer work as in the past and is at best a minor corrective.

A debate on how to address these multiple mismatches has started in Germany but needs to become more vibrant on a European scale. The overwhelming majority of Europeans are committed to democracy and the rule of law and can find common ground in how to embed these principles in a reform of Europe's institutional arrangements, both within the current treaties and through their eventual revision. What Europe needs is institutional innovation and experimentation, as it found in banking policy.

The ambition that underpins European integration should not be underestimated. For most EU member states, including the four largest euro area countries, European integration has become a core component of national identity. The crisis has revealed major vulnerabilities in the EU construct, but has also highlighted some of its strengths. Jean Monnet, a founding father of the European Union, noted that Europe is shaped by its response to successive crises. The inception of European banking union was triggered by market volatility in 2011–12. Similarly, further steps towards fiscal, economic, and political union could well result from other episodes of turbulence.

Institutional challenges are not the exclusive preserve of the European Union, as was illustrated this year by the dysfunctional treatment of fiscal policy by the US Congress. Less democratic regimes face similar challenges as well. Europeans have a lot to learn from the experiences of other countries all around the world.

Europe's institutional mismatches will not all be successfully resolved in 2014. But one can expect, and perhaps hope, that they will become clearer and start being debated more openly and broadly. A proper diagnosis is the first step towards healing.