This is the year of the European Banking Union. The European Union designed a surveillance mechanism of big banks and, if need be, their resolution. Banks should be able to fail and to be wound up. The Finance Ministers have agreed, and the European Parliament should approve the plan before the European election. If so, a European Resolution Board will have the competence to put a major bank into liquidation starting on 1 January 2015. In the US banks can be declared bankrupt. Will it be equally possible in Europe? In reality, it is unlikely. The ultimate consequence of the European Banking Union is not bankruptcy but recapitalizing big banks, taking the savings of ordinary citizens as collateral.
In Europe, so-called systemic banks are inextricably interwoven with the financing of public authorities – in particular welfare states - living beyond their means. Since 2011, the European Central Bank (ECB) called upon public authorities and banks to reduce their mutual dependency, but then launched measures that generated precisely the opposite effect. To save the euro and to unclog the financial transmission system the ECB injected 1,1 trillion euro in the European banking sector. Banks were entitled to borrow substantial amounts of money at low interest rates and in return for soft collateral. However, the flow of cheap money did not enhance the granting of credit to companies but instead enabled banks to acquire big amounts of public debts, in particular in Spain, Italy and France. Currently, Spanish banks own 41% of Spanish public debt. ‘We have brought these consequences upon ourselves’, said Jens Weidmann, President of the German Central Bank, openly criticizing official ECB policy.