The priority is to put in place the means to wind up insolvent lenders, writes Schneider in this FT article.
At the end of 2012, non-performing loans made up more than 24 per cent of loans in Greece; in Spain the ratio increased to more than 11 per cent; in Portugal the figure stood at 10 per cent – double that of the previous year. In Ireland, more than 15 per cent of all property loans for owner-occupied real estate are behind in payment.
The prospect of an ESM bailout takes the pressure off the banks to deal with these losses. Opening the fund for the direct recapitalisation of banks will not break the vicious circle of government debt and bank risks. Quite the contrary: it would become even worse. A supervisory institution without the authority to wind up failing banks is, in effect, a guarantee of survival for big banks. The ESM would strengthen their capacity to blackmail the public. This is why we urgently need an independent institution to wind up insolvent banks. It must have the right to close down banks and must be up and running at the same time as the supervisory authority.
In order to make it possible to shut down banks without wider spillover effects, we also need a resolution fund, financed by the financial sector. Some of the revenue of a financial transaction tax could be used – and the willingness of a country to introduce this tax could be a precondition for joining the supervisory mechanism. It would be a way to make sure that countries with a large financial sector implement the FTT – particularly current holdouts such as Luxembourg, Britain or Ireland.
Member States should remain responsible for banks’ legacy assets, since they occurred under national supervision. Financial aid should remain confined to countries only, and it must remain linked to macro-economic adjustment programmes. But if we want to continue towards a fiscal union, we need to find a solution to the problem of our outsized public debt. Instead of making it a more serious problem with new tax money via the ESM, we should make sure that European banks can fail.
The writer is a spokesman on finance in the Bundestag for Germany’s Social Democratic party
© Financial Times
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