Wolfgang Münchau: Merkel wins, Germany loses, the eurozone loses even more

Wolfgang Münchau in Bankenunion: Der fatale Triumph der Deutschen Spiegel Online 11.12.2013 declares the latest agreement on the European banking union to be effectively the burial of the concept. "Dass auch in den Medien immer wieder die Rede von einer Bankenunion ist, ist erstaunlich." ("That also in the media there is even now still talk about a banking union is astounding.")

Angelika Stricker and Luke Baker report for Reuters on the latest developments in Merkel raises new hurdles on EU bank union 10/19/2013:

EU leaders agreed at a two-day summit that the European Central Bank will take responsibility for overseeing euro zone banks from next year, but Merkel said it would take time for the new supervisor to be fully effective.

She made clear that would not lead to the bloc's European Stability Mechanism (ESM) rescue fund taking over liability from member states such as Spain for past bank rescues, and she posed extra conditions that some diplomats said seemed designed to ensure there will be no capital injections before next September's German elections.

"There will not be any retroactive direct recapitalization," Merkel told a news conference. "If recapitalization is possible, it will only be possible for the future, so I think that when the banking supervisor is in place we won't have any more problems with the Spanish banks, at least I hope not."

Behind the talk about building up the ESM's capability, the real takeaway is, in Münchau's words, "In den nächsten zehn Jahren bleibt die Bankenunion eine nationale Veranstaltung." ("In the next ten years, the banking union will remain a national event.") Prime responsibility for rescuing or reorganizing failing financial institutions will remain primarily a responsibility of individual nations.

As Stricker and Baker report, the latest decision crushes:

... Spain's hopes of soon removing the cost from its strained national debt.

Merkel's move limited the impact of a key decision by European Union leaders struggling to overcome a three-year-old debt crisis in the 17-nation currency area -- an overnight agreement to establish a single banking supervisor from next year.

The banking union that is needed to make the euro currency zone viable over the long term would mean common bank regulation within the currency zone and a common bank resolution mechanism supported financially by all the euro countries for banks that fail.

Merkel's narrowly nationalistic policies, with whom she partnered closely with her current Finance Minister Wolfgang Schäuble, want to protect German taxpayers from liability for non-German banks while forcing countries like Greece, Ireland and Portugal to take on additional public debt at levels ruinous to their economies in order to prevent the problems it would cause German banks if unpayable public debts of those countries were written down.

Münchau also points out the one likely outcome of the arrangement is to increase deflationary pressures in the eurozone by restricting bank lending:

Auch die Bankenunion ist Teil einer großangelegten Strategie des Konkursverzugs. Aus der Wirtschaftsgeschichte wissen wir, wo so was immer endet.

Wohlgemerkt, es ist das Team Merkel/Schäuble, das hier siegt. Nicht Deutschland.

[Even the banking union is part of a full-scale strategy of delaying bankruptcies. We know from economic history where that always ends.

Take note, it is the team Merkel/Schäuble that wins here. Not Germany.]

Heckuva job, Angie, heckuva job!

Tags: angela merkel, austerity economics, eu, euro, european union