Christine Lagarde, head of the International Monetary Fund (IMF) has adopted poetic language when talking of the Eurozone and urging European leaders to waste no time in completing moves towards banking union. Addressing a conference in Paris, Ms Lagarde used a maritime metaphor for the Eurozone: "We very much think of the euro area as a beautiful ship that has been built, nurtured... for the soft seas, but which is not yet completely finished for the rough ones. A lot has been done in relation to banking union. If I have a message today it is that that particular part of the ship needs to be finished, needs to be completed and speed is of the essence."
Many believed that the “good ship” Eurozone would founder in the tsunami of the Global Financial Crisis or the raging storms of the European Sovereign Debt crisis, with rump Eurozone states desperately clinging to the floating debris of the Euro, but, in the event, such fears were not realized.
Banking union within the Eurozone can be likened to the tsunami sea defences that Japan built to protect against cataclysm. The Japanese defences were not required for many years and, in the end, the catastrophe that hit Fukushima was bigger than anything envisaged, but the structures did withstand the event. Only time will tell if this is a good metaphor for banking union.
Eurozone leaders are planning a pool of national financial reserves, under the control of a banking supervisor, which could rescue banks should disaster strike (again), or close such banks down. The supervisor would have responsibility for all 6000 banks within the Eurozone under the single resolution mechanism (SRM), but some states think a new treaty is needed to bring the banking union into reality. Chief amongst these voices is Germany’s; Germany is opposed to the creation of the single authority since it believes that a new treaty would be needed – a process that would probably take many years to complete.
SRM envisages a €55 billion fund, financed by levies on the banks themselves which could be called on, if needed. The banks would have to top the fund up if monies were utilised, but the size of the fund could not cope with a widespread banking crisis with that level of asset provision. The hope would be that enough remedial action has already been taken by governments and the financial sector to prevent such a scenario from re-occurring.