Action is progressing on a number of fronts for the European Union even as opposition from countries such as Germany and the U.K. continues to slow progress.
A plan has been proposed for a single banking framework for the eurozone, and in mid-September the European Parliament approved a measure that will allow the European Central Bank to supervise some 6,000 banks in 17 eurozone countries. However, it’s far from a done deal, despite the fact that the ECB is scheduled to oversee the banking union in just a year and there’s plenty of groundwork yet to be laid.
Germany, for one, has been outspoken in its challenges to a single entity’s oversight of the banks, and has also rejected the notion that the Single Resolution Mechanism has the legal groundwork to permit banks to be shut down, since that could endanger individual eurozone countries’ control of their own budgets.
German Finance Minister Wolfgang Schaeuble expressed his concerns over the European Commission’s proposal, as well as voicing opposition to a planned common resolution fund and the scope of the system. After Germany, along with Sweden and Slovakia, challenged those parts of the plan, EU financial services head Michel Barnier granted a concession concerning which banks would come under the ECB’s aegis and narrowed the scope to lenders doing cross-border business, regardless of size.
But that’s not enough for Germany, or for some other EU countries that see any attempt to create a true banking union as a challenge to individual national authority—particularly over budgets. And Germany, prior to elections, was in no mood to compromise. It remains to be seen whether the frosty atmosphere will thaw now that votes have been cast.
Angela Merkel retook her seat for a third term in a resounding victory, with her party taking 41.5% of the vote—its best result in 23 years. However, the Christian Democratic Union’s former coalition partner, the pro-business Free Democrats, is out of a job, falling below the 5% necessary to hold seats in Parliament. It’s the first time since the end of World War II it has done so, and Merkel will have to seek support elsewhere despite holding a strong majority.
The Social Democrats and Greens are the most likely candidates for coalition partners, though wooing either party’s support will not be easy. Those two parties are also slightly more open to the possibility of a limited pooling of the debt of European countries, something Merkel has firmly opposed, as well as being more in favor of a push for growth rather than a concentrated focus on austerity. It is too soon to tell whether they might open the door to more flexibility regarding the banking union.
Another thorn in the EU’s side is the financial transaction tax. The European Council’s legal arm presented the European Commission with an opinion in early September criticizing the tax, saying that it “exceeded member states’ jurisdiction for taxation under the norms of international customary law.” However, the European Commission has criticized that opinion, saying that the plan does not breach any provisions of the EU’s treaty and that work on the tax would continue.