Banking Union Timetable Established, Hollande and Merkel Disagree on Specifics

German Chancellor Angela Merkel at the World Economic Forum in 2007.
Photo: Flickr.com/worldeconomicforum

At last Thursday’s EU Summit in Brussels, French President François Hollande, German Chancellor Angela Merkel, and other European leaders reached an agreement on a timetable for the eurozone’s regulatory banking system.  Although a compromise was finally reached, the events leading up to it and its stipulations are telling of the relationship between Hollande and Merkel.

The current agreement stands as the first of three steps toward further regulation, or creation of what is called the banking union, which will install a common system of insurance deposits and restructure the liquidation of banks in financial trouble.  The regulation will be extended toward major banks or those with systemic risk, and upon further inspection, 6,000 smaller banks if necessary.  All political deliberation of the legislative framework for the regulation must be finished by the end of 2012, and will be followed by gradual implementation in 2013, so that by 2014 the entire system within the eurozone would be under banking regulation.

Overall, amongst Europe’s leaders the banking union is seen as a step in the right direction toward political union and greater European integration.  However, the question of how quickly such plans will truly go into effect is still in question. For Hollande, this agreement stands as a small victory in comparison to Merkel, both of whom desire different paces for the banking union. The French President is pushing for immediate implementation of the regulations so that the system can stabilize under a period of relative calm in the markets.  Hollande insisted that “Europe does not lag behind, it takes the lead to cover its agenda.” However, according to him, “it is possible to go faster” assigning a sense of urgency to the eurozone’s financial crisis.

Applied urgency is especially important to Spain, who left the loser after the budget summit.  60 billion Euros are required to prevent the collapse of Spanish banks. However, after agreement on this timetable it is likely that Spain will not receive aid in the form of rescue funds until 2014.  Hollande has repeatedly encouraged that the eurozone act quickly to bring down the costs of borrowing for both Spain and Italy.

Soon after the summit a German newspaper named Hollande the “pacemaker” and Merkel the “brake.” Hollande had hoped that the regulations would go completely into effect this year, much sooner than what the actual timetable proposes.  The French President has criticized Merkel on Germany’s stalling, claiming that “the institutional issue is often evoked in order to avoid making choices.”  In his first interview with The Gaurdian the President stated, “It hasn’t escaped my notice that those quickest to talk of political union were often those the most reticent to take urgent decisions.”  Hollande urges building financial security before political integration.

Merkel came out the victor after this summit since her aim to delay the banking union until 2013, after Germany’s elections, succeeded.  The Chancellor is treading on difficult waters as her voters become increasingly more opposed to the idea of helping banks and countries in financial difficulties.  Hollande has taken the opportunity to attack Merkel’s involvement of domestic politics, namely electoral considerations, with her work in solving the euro-crisis.  Hollande has called on Merkel to put Europe’s interests before the interests of her parliament.

Hollande’s open challenges to Merkel can be partially explained by his attempts to break from previous President’s Nicolas Sarkozy’s position on the political union.  A relationship that was once dubbed “Merkozy,” Hollande is trying to break away from Merkel’s push toward stricter austerity measures and stronger political integration in favor of rapid economic legislation to later build political union within the eurozone. Since Hollande took office, his relationship with the German Chancellor has been politically fraught as the leaders continually test each other and adjust to one another’s positions.

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