The House of Lords EU Sub-Committee on Economic and Financial Affairs has today published its report looking at EU proposals for rescuing failing banks, describing them as inadequately funded, overly complicated and politically unrealistic.
The report, entitled ‘Genuine Economic and Monetary Union’ and the implications for the UK also calls on the UK Government to get strongly involved in the plans. As the eurozone moves towards closer integration the UK will need to work hard to influence the debate, which it needs to do for its own good, for the good of the City of London, and the good of all 28 members of the EU.
Other findings of the report include:
- Banking Union is vital to the success of the EU plans, but the proposed resolution mechanism for dealing with failing banks is not fit for purpose.
- Financial stability can only be achieved through a common deposit guarantee scheme, but these plans are dead in the water
- Without a workable banking union, the vicious circle linking bank debt and sovereign debt will not be broken.
- Although politically remote, the eurozone's safety could require both debt mutualisation and a system of financial transfers.
- The Committee welcomes the decisive action taken by the European Central Bank to tackle the eurozone crisis, but warns that its credibility as bank supervisor must not be jeopardised as it undertakes its comprehensive assessment of the banking system.
Commenting on the report, Lord Harrison, chair of the Committee, said:
"We commend the achievements so far of the Commission in its journey towards Banking Union, in particular in establishing the ECB as a single supervisory body. However, we remain concerned that the proposals for pulling banks back from the edge are deeply flawed. The bailout mechanism is underfunded and it's too cumbersome to react speedily enough to a crisis. On top of that the prospect of ensuring a common eurozone guarantee for depositors' money has disappeared from view completely."
"The UK Government need to take a long hard look at their role in these plans. It's all very well for the UK to keep its distance from banking union, but it's only by getting involved in the debate that it can ensure that its interests, those of the City of London, and those of every Member State, are taken into account."