Shaky start for Banking Union

Political interference could delay the start of a European Banking Union “well beyond” the end of the year, David Marsh, co-founder of the Official Monetary and Financial Institutions Forum, told a recent gathering of the AERL.

“It will not be a smooth process,” he said, pointing to the predicted rise of anti-European parties in the next European parliament who could try to delay progress.

Marsh also said lack of funds made a key aspect of the Banking Union – debt mutualisation – a “political hot potato”. Important measures such as depositor protection and a resolution scheme have thus been put on ice.

Creating a Single Supervisory Mechanism (SSM) would also pose a challenge, he said, because the European Central Bank had little experience as a supervisory authority and would have to “knit together” supervisors from around Europe with different banking cultures.

Looking globally, Marsh said Japan was the biggest cause of concern in the industrialised economies but added that the Eurozone was not out the woods and that some countries may yet be forced to leave the eurozone in future.

In the emerging economies, four out of the “fragile five” (India, Brazil, Indonesia, South Africa and China) faced the twin challenges of an outflow of ‘hot money’ with the tapering of quantitative easing at the same time as elections.

In Britain, he predicted “business as usual” with the Scotland staying in the Union and the UK remaining in the EU.