This article claims that signs are growing that Europe's economic and monetary union may be fragmenting faster than policymakers can repair it.
Eur zone leaders agreed in principle on June 29 to establish a joint banking supervisor for the 17-nation single currency area, based on the European Central Bank. The proposal was a tentative first step towards a European banking union that could eventually feature a joint deposit guarantee and a bank resolution fund, to prevent bank runs or collapses sending shockwaves around the continent.
The leaders agreed that the eurozone's permanent bailout fund, the €500 billion European Stability Mechanism, would be able to inject capital directly into banks on strict conditions once the joint supervisor is established. But the rush to put first elements of such a system in place by next year may come too late.
Deposit flight from Spanish banks has been gaining pace and it is not clear a eurozone agreement to lend Madrid up to €100 billion in rescue funds will reverse the flows if investors fear Spain may face a full sovereign bailout.
The longer that situation goes on, the less chance there is of a recovery in southern Europe, and the bigger will grow the wealth gap between north and south. With ever-higher unemployment and poverty levels in southern countries, a political backlash, already fierce in Greece and seething in Spain and Italy, seems inexorable. European Central Bank President, Mario Draghi, acknowledged as he cut interest rates last week that the north-south disconnect was making it more difficult to run a single monetary policy.
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© Reuters
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