The process of establishing Banking Union. Origins, legal foundations, objectives and operating principles

Abstract

The paper presents the origins, legislative process, legal foundations, objectives and operating principles of the Banking Union as a new organisational structure of Economic and Monetary Union. The paper also discusses new powers vested by virtue of the political reform to supranational and intergovernmental institutions of the European Union (the European Central Bank, the European Parliament, the European Commission, the Court of Auditors and the Council of the European Union) as well as to the national parliaments of euro zone countries.

The establishment of Banking Union, which will become fully operational on 1 January, 2016, raises numerous justifiable concerns. The main one is that the resources at its disposal will be too limited when a new financial crunch breaks out in the euro zone. This concern is somewhat weakened by the fact that the outlay on the restructurisation of banks will mainly be borne by their shareholders and creditors, followed by the holders of deposits in excess of EUR 100,000 and only eventually by the single resolution mechanism (SRM). Another concern is raised by the solutions adopted for Banking Union, which give significant influence on its operation primarily to Germany, and also to France. Germany succeeded in conditioning the process of restructuring euro area banks on numerous safeguards that strengthen Germany’s position in the decision-making process (e.g. in the Single Resolution Board) but also make the operation of Banking Union more complicated. Since Germany is going to have the greatest share in the SRM, it will also have a decisive say in all the most important bankruptcy processes, thereby influencing the direction of reforms in countries suffering from a financial crisis. One can venture to say that Germany has benefited economically and politically from the debt crisis of the euro zone and its reform. Germany has emerged from the crisis practically unscathed, and to a large extent imposed its own approach to the reform in the euro zone. Germany has emerged as the only European Union leader, at least for now.