European officials last year recorded important for banking union proposal that would resolve a failed institution; supply, strong central supervision of banks, and provide solid guarantees depositors that their money is safe. If carried out fully, the plan could help restore economic health in Europe.
However, the banking union has been delayed by internal divisions within the EU. In particular, German banks that trade agreements must be preceded by changes threaten to put a full economic recovery off for the next few years.
In the era of economic globalization, Europe is weak, such as Spain, Italy and Greece, banks are increasingly unwilling or unable to lend to businesses and individuals. Many are sitting on piles of bad loans made during the bubble years that may not be repaid. These institutions should be closed, merged or given more capital. But the government will in the countries, which is already struggling to meet the fiscal targets Europe with raising taxes and cutting spending, not in a position to rescue their banks.
In the end last month, European finance ministers took a half step toward the banking union by agreeing that the shareholders and the creditors have to accept a loss before tax payer funds can be used to prop up troubled banks. But the agreement, which still must be approved by the European Parliament and will not apply until 2018, will not form a central European authority to deal with failing institutions. Each national government will be responsible for dealing with troubled banks themselves although many countries do not have the ability or political will to resolve the issue. Would be much better if policymakers gave that authority to the Pan-European entity, which would be independent of political interference.
Council of the European Commission, the executive body of the European Union, is expected to publish proposals for bank resolution authority continentwide in July. But the effort has been marred by Angela Merkel, German chancellor, who said he would not support such an approach without any underlying change in the EU treaty. Such changes would require approval from the legislature and, in some cases, referendum. Germany has also previously stated that each country, not Europe as a whole, have to pay the resolution of troubled banks.
In Europe Agreements provide enough flexibility for some power over the banks that will be delegated to a centralized authority. Officers can use their power to make what amounted to de facto banking union. At the same time, they can begin to work to prepare and enact amendments to the agreement to provide a strong legal basis for the union for the future.
The European Central Bank has bought some time by aggressively buying assets from banks, but the intervention was not possible to turn the tide of the economy. Unemployment in many European countries tragically high. And it's hard to imagine how this economy will never create jobs without properly functioning financial system.