Instead of a decentralized European Central Bank as some had hoped, the ECB plans to expand their powers and assume supervision of 6000 EU banks. Under new proposals, they want the sole authority to grant banking licenses. The new rules will officially become public on September 12th.
The ECB will be able to overrule nations in granting licenses but the individual nations would still control the actual shutting down of the lender after listening to advice from the ECB. The ECB gets to micromanage banks, decide who to supervise, and control the capital requirements.
Germany wants to know more of the details as to how the ECB plans to supervise 6000 banks.
The ECB technocrats will have the power to override national rights and national sovereignty under this plan. Their answer to big government is bigger government.
The ECB believes the regional banks caused their financial breakdown, not the large bank failures. Banks are currently sprouting up outside their system which they believe pose a threat. The answer for them is to create a monolithic system of bureaucracy to control it all.
Germany said they will let the ECB become the EU bank supervisor if most tasks are delegated back to the national level. They want control of local savings banks kept at the national level. Germany would otherwise lose the power to influence the freeing-up of credit to smaller companies.
That is not the ECB plan.
The ECB plan is not a good deal for Germany but it’s a great deal for the failing economies who want to ease up on austerity. While many EU nations are dealing with recession and record unemployment, Germany is giving high pay increases to their workers. The ECB plan spreads the wealth.
The Germans have put a draft law in play which would give the German national bank, Bundesbank, more power. Germany is concerned because if the EU is to adjust, some EU countries will be allowed to run trade surpluses, and that means someone has to run deficits. Germany is the largest economy in the EU.
The Germans want a German-led political union which is not in the ECB plan.
The ECB wants to monetize and bailout the nonproductive EU members while Germany, concerned about inflation, wants to impose fiscal constraints and austerity. Germany went through the horrors of wild monetization under the Weimar Republic and they don’t want to repeat history.
However, Germany can’t be seen as causing the Euro breakup.
Germany was none too happy recently when the ECB shifted losses (3.8 billion euros) on its PIIGS portfolio to the national Central Bank (Germany’s Bundesbank).
The monetary union wants their Keynesian monetization for the temporary relief it will provide.
The ECB must avoid causing inflation in Germany as they monetize the debt or Germany will bolt. It won’t be long before Spain comes up for their bailout. If the ECB monetizes too aggressively and inflation rises in Germany, the Germans will threaten to leave the EU.
The EU bailouts might be slowing or even coming to an end. This latest ECB plan seems like something that will never fly in Germany or, if it does, it will be a fragile union at best.
Read more at SF Gate and at CNBC