José M. de Areilza
October 3, 2008
The global financial crisis is putting the EU system of economic governance to a serious test. The single currency was launched without the rest of the building blocks of an economic federal government. Probably more economic centralization and central coordination was needed but it did not happen after the euro was created on May 2, 1998 nor in the subsequent years -finishing the economic architecture was not even part of the failed constitutional project.
Hence, the supervision and inspection of the financial system is still in the hands of Member States and the EU budget never grew to include enough European resources to use in an European wide /global crisis like the present one. Structural reforms also have been national matters, once the 2000 Lisbon Agenda has faded away. Let’s face it, we have an incomplete system of economic governance in a rather successful single market that is based on non discrimination, freedom of establishment and free movement of capital, and that is of course part of the global financial market.
So, in the present situation of financial crisis, do we still call national banks those who operate in the single market but do it largely according to national rules? Or do we treat them as European banks and seek a common European policy that takes into account all the “negative externalities” out there? The answer is important because consumer protection and guarantee of deposits will depend on it and there are important differences among national legislations, institutional designs and economic means to eventually rescue financial institutions and protect citizens interests.
The Irish have gone their way and irritated other Member States and the EU institutions by taking unilateral measures that discriminate between Irish and non Irish banks, a kind of an emergency State aid, probably agains the EU norms. But the underlying problem is not the Irish government, is the lack of a European policy that would allow EU political institutions to work with national ones and intervene efficiently in the current crisis, i.e., not taking four years to pass a new directive. Even the US with its well established federal system has had problems coordinating states and federal institutions in this area of economic regulation before the crisis.
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