Germany’s Concerns About a Banking Union Lack Credibility

Germany is hitting the brakes on a banking union crucial to the long-term survival of the euro, on the grounds that it needs a better legal foundation. That position would be a lot more convincing if Germany were doing more to reduce the threat its largest financial institutions pose to the European economy.

The banking union, which European Union leaders agreed in December to create, is supposed to help sever the unhealthy link between banks and governments. Empowering the European Central Bank to supervise financial institutions throughout the euro area could discourage cozy and often corrupt relations at the national level between banks and politicians. Centralizing the authority and money needed to take over and recapitalize banks could keep the troubles of large banks from ruining a nation’s finances -- an all-too-real danger for euro countries such as Ireland and Spain.