European banking union: a huge European trap

28 March 2014

European banking union: a huge European trap

In the SP’s view the Europhoric vote on the concluding agreement for the banking union is misplaced, because the idea that forms the basis of such a banking union is fundamentally flawed. The SP argues instead for a return to human scale in the banking sector, rather than hanging on to a failing system.

Dennis de Jong

The thinking behind the banking union is that if we cut the link between banks and nations and Brussels is to be responsible for all EU-based banks, no more banking crises will occur. Tightening up the rules on how much leverage banks must maintain does not create any essential change; at best the risks will be slightly reduced. In short, without fundamental change the banking union will merely keep the failing banking system going. The principal causes of the bank crisis are still not being addressed. Banks are, for instance, still too big and must first of all be reduced in size before anything can really improve. In order to prevent a further crisis what we need to do is take a step back and tackle the problem at its core. It’s time, therefore, to really change the banking sector.

An important measure necessary to reforming the banking sector is the breaking up of banks in Europe. This would enable much more effective monitoring of banks which concern themselves with normal payment traffic.

By separating trading activities banks will be prevented from gambling with their clients’ money unless asked to do so. The hived-off bank in which trading is conducted will be taking the risks. They will be the ones to experience the joys and carry the burdens. Even in this part of the banking sector this should lead to more responsible behaviour, but if not it will at least prevent the taxpayer from being the fall guy.

The SP doesn’t want to fall into the European trap in which all banks will be made responsible for repaying each other’s debts via a single European securities settlement fund. There is absolutely no reason why banks which conduct their affairs with care and direct themselves exclusively to ordinary movements of payments should be forced to repay the costs of bank trading.

The banking union is a gross deception being perpetrated against the public: if banking is not fundamentally changed, the saver and the taxpayer will pay on all sides for the next crisis, banking union or no banking union.

Dennis de Jong is a Member of the European Parliament for the SP and heads its list for the coming elections.

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