EU Initiative to Protect Taxpayers from Bank Bailouts is a 'Mirage'
VADUZ, Liechtenstein, January 7, 2014 /PRNewswire/ --
Taxpayers will no longer be asked to help bail out ailing commercial banks if a new European Union mechanism - the Single Resolution Mechanism (SRM) - is ratified, writes economist Professor Enrico Colombatto in World Review.
The SRM will mean that the EU can count on a new agency which will ensure that bad banks are no longer bailed out at taxpayers' expense but by their stakeholders. Deposits under 100,000 euros are guaranteed by the EU rather than by national governments.
The mechanism has yet to be ratified by the European Parliament, and European authorities are confident that the SRM will be approved before Easter 2014.
Yet, this transfer is not accepted without reservation by all the parties involved and is likely to create tension over the next few months in the European Parliament in Strasbourg.
'The introduction of the SRM could be interpreted as a further step to remove the world of banking from the sphere of political decision-making and assigning it, with minor constraints, to the world of Euro-technocrats,' says Professor Colombatto.
Funding for the SRM - 55 billion euros - is inadequate and will come too late. 'By today's standards, 55 billion euros are just one per cent of the insured deposits, whereas the amount of ammunition required to stop a systemic crisis detonating is about one hundred times that amount,' he says.
'Furthermore, those 55 billion euros would be gradually accumulated by the mid-2020s. What happens if some banks go belly up over the next five years?'
Professor Colombatto believes the SRM reflects the fundamental ambiguities that the EU has been unable to solve since the euro was introduced.
'On the one hand, part of the union applies pressure in order to transform national debts into federal liabilities with guarantees and bailout rules coming from Brussels and Frankfurt,' he says. 'On the other, the German bloc insists on national liability and accountability, according to which the European authorities might contribute only discretionary and limited financial support.'
'In other words, disasters have been averted, but the system's structural failings have not been fixed.'
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About the author
World Review author Professor Enrico Colombatto is a professor of economics at the University of Turin, Italy. He is also Director of the International Centre for Economic Research (ICER) in Turin and Prague and Director of Research, Institut de Recherches Economiques et Fiscales (IREF) in Paris.
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