Why Europe Needs a Banking Union
When a bank goes bust in Europe, it doesn’t just threaten depositors and shareholders. With no single agency to handle failing euro-area lenders, wobbly banks can drag down the national governments that try to rescue them. European Union leaders pledged to attack this vicious circle in June 2012, in the third year of a debt crisis that almost broke apart the euro bloc. They plan to centralize bank supervision and crisis management for the first time, an effort seen as the biggest transfer of sovereignty since the creation of the common currency. Policy makers are united in the goal of what they call the banking union: ending taxpayer bailouts and taking key decisions out of national hands. But first they had to agree on who decides when a bank has failed, who pays to clean it up and how to divvy up the losses. Plus they had to convince Germany that it won’t end up paying the bill.