view online | send to a friend
Issue 20 - 1 November 2013
This newsletter is published by SOMO and WEED.

You can download this newsletter as a PDF (291KB) here.

Subscribe to the EU Financial Reforms newsletter.

Editorial: Dozing on the volcano
New German government will bring no changes in EU policies

The German election campaign and the complicated procedure for establishing a new government have lead to a stand still of half a year in the management of the EU crisis. It will last at least until Christmas until the new government will start working.

As the liberal party, FDP, has been wiped out from the parliament, Merkel has lost her coalition partner. Although her party had with 41,5% a good score, Merkel needs a new partner to have a stable government.

In this newsletter:

Share this email

As things stand, this will be the Social Democrats (SPD). The SPD reached only a meagre result of 25,7%, but has a majority in the second chamber, which represents the 15 federal states, and could therefore block many projects. As the SPD was not benefitting from the last coalition with Merkel between 2005 and 2009 there is also some reluctance inside the party to go for a new similar coalition. All this makes the procedure complicated and time consuming.

Whatever the outcome, there will be no substantial changes of the German position with regard to the European crisis. If in other countries, in particular in the crisis countries and France, there were hopes that a new government would make a difference, they will be disappointed. Even in previous years the SPD supported Merkel - albeit with some accompanying critical rhetoric - on issues ranging from her method of bailing out banks to the austerity policies.

Also in the election campaign, the EU crisis was no issue. Referring to a movie from the “roaring twenties” with the title The Dance on the Volcano, German philosopher, Jürgen Habermas, was describing the situation as Dozing on the Volcano!

In the current negotiations, the SPD has already given up modest demands such as Euro bonds. The only new element will be some Billions of Euro to mitigate youth unemployment in the crisis countries. But in substance there is a deep-rooted consensus: both Christian Democrats and Social Democrats defend the German development model, which is based on a neo-mercantilist concept of export for German products at any price. The relative high share of industrialisation with automobile and machinery on top, is not only based on big corporations like Volkswagen and BMW but also on a strong involvement of medium-sized enterprises with globally competitive, high tech products. This coalition of interests even integrates the employees and trade unions of the export sector. Just as the UK economy is dependent on the City of London, the German economy is like a junkie, who cannot live without the excessive competitiveness of its export industry. The new government in Berlin will remain stoned.

Summaries of the articles in this issue

Unanswered questions in the EC’s roadmap to tackle shadow banking
EU parliamentShadow banking that provides credit in an unregulated way, still poses a threat to the whole financial sector. The European Commission (EC) has come up with a road map to tackle the many different actors and products of the shadow banking system. As an important step, the EC proposed a Regulation on Money Market Funds (MMFs) on 4 September 2013 but it is not clear whether the new law will be approved before the election time of the European Parliament (March –May 2013). Many further steps of the roadmap need to be taken and crucial steps are missing, e.g. tackling routing capital between shadow banking entities through off-shore centres such as the Netherlands and Luxembourg.

Read the full article >

Will the Banking Union save the euro?
Agreement on new supervisory regime for big banks in the Eurozone 
EU parliamentThe first step for a banking union in the Eurozone has been decided: from November 2014 onwards, the European Central Bank (ECB) will directly supervise 130 out of the 6000 banks in the Eurozone. In the preparation phase, the ECB will implement bank stress tests. If the tests are realistic, several banks will have to be either recapitalised or shut down. Recapitalisation would have to happen nationally, which would lead to major difficulties in crisis countries. The other 2 steps that will create the pillars of the banking union are the Single Resolution Mechanism (SRM) and a single savings account protection system, the specifics of which are far from being agreed upon. There is a sharp conflict over decision powers and who will pay for failing banks. The official date for the implementation of the SRM is 2018. For the savings account protection fund, a deadline has not even been set. The whole banking union project might remain unachieved or be watered down to an extent that it will not be able to meet the expectations. But even if it were fully implemented, it does not have the capability to prevent the break-up of the Euro, as it does not repair the root causes of the misconstruction of the currency.

Read the full article >

For background to the official agenda of European institutions, see the following websites: The links below give the website with updates and overviews of documents and dates related to the EU decision making process.

November 2013

December 2013
  • 1, G20: Australian Presidency begins
  • 2, ECON (Brussels): Meeting
  • 5, ECON (Brussels): Meeting
  • 9,  Eurogroup (Brussels): Meeting
  • 9, EP (Strasbourg): Indicative plenary sitting date, 1st reading/single reading on Recovery and resolution framework for non-bank institutions
  • 10, ECOFIN (Brussels): Meeting, probably work on Excessive Deficit Procedure and FTT
  • 11, EP (Strasbourg): Indicative plenary sitting date on MiFID-II and MiFIR
  • 12-13 NGOs (Brussels): TTIP strategy meeting
  • 16-17, ECON (Brussels): Meeting
  • 19, European Council (Brussels): Two-day Summit of heads of state
  • 22, Eurogroup (Brussels): meeting

January 2014

February 2014