Banking disunion

We will soon learn whether we are advancing toward a banking union, at least in the slow lane - Berlin has already ruled out the fast one. It's a good time to ask: what purpose should be served by banking union? The question is not of interest to bankers alone.

Union would serve to prevent scenarios such as those seen in Ireland and Cyprus: collapses caused by the insolvency of big banks. When the state picked up the bill, the contagion only spread, threatening the country's continuity in the euro, and the euro itself. With banking union, private creditors - as many as were seen fit - might take losses, but final responsibility would fall to an entity more powerful than any one state: the euro zone as a whole.

As Mario Draghi, the ECB president, put it, this project "is important because it will help to sever the links that bind banks to their respective sovereignties; these links being what caused the fragmentation in the financial markets of the euro zone." The circle of excessive bank debt and excessive sovereign debt becomes a vicious one when state bailouts turn private debt into public debt (or even without such bailouts, thanks to implicit confidence in a bailout), and when banks seek to ingratiate themselves with their governments by buying Treasury bonds - all the more succulent, because yields are higher the more vulnerable they are.

Banking union is also needed to stop the growing fragmentation of the financial markets. This fragmentation means that, insofar as distrust increases or at least lingers, there is a renationalization of operatives: the banks of the healthiest countries try to retreat from positions where they perceive risk. And market fragmentation exponentially increases the dispersion between interest rates in the north and south, which translates into different financing costs in each area. This erodes the interior market, hurts the poor, and exacerbates grievances - the worst of prescriptions for a common EU project.

Can anyone still doubt that banking union is of interest to the average citizen?"

The interest rates demanded of the vulnerable countries, and of the rest, were very similar at the turn of the century. But soon the rates being dispensed to companies in the southern countries - Greece, Ireland, Portugal, Italy, Spain, Slovenia - began to rise, so that in 2012 these were almost double (5.9 percent) those of the rest (3.2) for loans under a million euros; and were also more costly in those over a million: 4.5 versus 2.4 percent. In Spain, loans to companies cost 62 percent more than in the normalized countries, and, for small businesses, 87 percent more. Credit to the consumer cost 75 percent more than in the rest. An ECB study corroborates all this. Can anyone still doubt that banking union is of interest to the average citizen?

The German government has taken its foot off the accelerator when it comes to concrete details of the banking union agreed upon a year ago. Why? Perhaps to force the French to put their books in order; or for the juridical reasons (German unconstitutionality) adduced by finance minister Wolfgang Schäuble; or for fear of committing more taxpayer's money on the eve of general elections. Or, interestingly, for fear that a real banking union might lay bare the less-healthy German banks, the regional landesbanken ; the major German private banks, Deutsche Bank and Commerzbank, having lately found themselves forced to carry out the capital increases demanded of them. Perhaps due to a mixture of all these factors.

However, "delay is very costly; it means that money will flow out of countries such as Greece and Portugal, devastating not only the financial system, but also their economies, and many of these effects will be irreversible," said economist Joseph Stiglitz in a recent lecture in Barcelona. The foot has to get back on the accelerator.