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European inaction on banks is costing time and money

Thursday 10 June 2010 - by Nicolas Veron


Barack Obama last year shrewdly remarked that “political interaction in Europe is not that different from the US Senate…everybody has their own particular issues and their own particular politics.” Alas, only centralised executive actions can restructure a banking system, a process that involves many hard choices that the diplomatic ways of EU decision-making have proven unable to deliver.

The European Union must now find a way to clean up its financial institutions rapidly in order to strengthen themselves against the possibility of sovereign defaults, and also prepare the ground for a credible EU-level supervisory framework without which the aspiration to build an integrated market cannot be fulfilled.

Banking reform has become as urgent as fiscal adjustment, and as important for stability as enhancing Europe’s growth potential and fixing the eurozone’s fiscal policy framework. Failing to achieve comprehensive EU bank restructuring before the expiration of the eurozone’s new three-year stabilization mechanism could have devastating consequences. The clock is ticking.

Nicolas Véron is a senior fellow at Brussels think tank Bruegel and a visiting fellow at the Peterson Institute for International Economics in Washington.



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