The Council of the European Union has reached an agreement that spells for greater centralization of EU banking. This Single Supervisory Mechanism (SSM) with direct oversight of 200 largest banks of the EU would enable the European Stability Mechanism (ESM) to “recapitalise banks directly.” Currently the ESM must use the resources of member countries' treasuries.
This move would help consolidate banking power in the hands of the EU, and transfer a significant amount of the financial sovereignty of member states to the European Central Bank (ECB).
This means that any banks in the Euro zone with assets greater than €30 billion would be under the direct oversight of the ECB. The agreement is being praised by European Commission President Jose Manuel Barroso as a “substantive step towards completion of the banking union."
Currently the United Kingdom’s formal opt out of the Euro zone has saved it from being forced to join the banking union. However, any greater power transfers to the EU from the UK could spark a referendum on the matter.
This move to consolidate power in the EU and give the ECB power to directly bail out failing countries' central banks in the EU could lead to greater instability in the Euro zone. Much of the instability in the EU can be attributed to the ECB and member countries that have grown reliant on the EU for protection from the harsh realities of deficit spending.
Countries such as Greece and Spain will not suddenly begin to balance their budgets if further bailout will be freely given by the ECB. Currently Greece’s debt-to-GDP ratio is two to one! These unsustainable trends will only be given further cover of night from the ECB if it is given the power to further monetize these debts. The inflation that bailouts will cause will pass the cost on to all member countries.
It is about time that the productive members of the EU let the countries that have been extremely financially irresponsible take the heat for the mess they have gotten themselves into. Greater economic and financial sovereignty will help reduce these instabilities and the irresponsible behavior that has caused them.