A Call for a Banking Union — A First Step Towards European Federation

EU Commission President José Manuel Barroso has called for the EU to evolve into a “federation of nation-states.” Addressing the EU parliament in Strasbourg on September 11, Barroso said such a move was necessary to combat the continent’s economic crisis. He said he believed Greece would be able to stay in the eurozone if it stood by its commitments.

Barroso also set out plans for a single supervisory mechanism for all banks in the eurozone. He called the plans a “quantum leap…the stepping stone to the banking union.” Barroso said he was not calling for a “superstate,” but rather “a democratic federation of nation states that can tackle our common problems, through the sharing of sovereignty.”

The European Central Bank would get much greater powers of oversight and regulation of Europe’s 6,000 banks under the plan. Barroso said eurozone countries should not rely on bailouts from the ECB, saying the bank “cannot and will not finance governments.”

“But when monetary policy channels are not working properly, the Commission believes that it is within the mandate of the ECB to take the necessary actions – for instance, in the secondary markets of sovereign debt,” he added.

With respect to Greece, Barroso said he believed the eurozone had reached a “turning point.”

Source: BBC online, September 12

In The New York Times (September 11), columnist Roger Cohen focused on the ongoing battle between Mario Draghi, the Italian president of the European Central Bank, and Jens Weidmann, the president of the German Bundesbank – “a big idea (Europe) versus a smaller one (price stability)….”

“Little by little, Mario Draghi, has taken an institution whose overriding mission was to keep inflation in check – the obsession that built the Deutsche Mark – and turned it into a lender of last resort prepared to throw everything into buying the distressed euro-zone sovereign debt of countries like Spain and Italy and so preserve the euro. “Whatever it takes,” Draghi says. He means it.

“Many Germans are not happy, convinced an inflationary southern rot is setting in, but Draghi is right. Europe is irreversible; for that, at this point, the euro must be, too. The preamble to the US Constitution speaks of “a more perfect union.” The founding European treaties speak of “ever closer union.” For neither has the road to union been devoid of battles between north and south. But the cause has been worth the fight on both sides of the Atlantic. There simply is no greater one. For Europe, the approaching centennial of the outbreak of World War I should be sufficient reminder of that.”