The giant euro symbol stands illuminated outside the headquarters of the European Central Bank in Frankfurt, Germany.(Getty Images )
The giant euro symbol stands illuminated outside the headquarters of the European Central Bank in Frankfurt, Germany.
(Getty Images )

Germany Wins Battle Over Banking Regulation

December 17, 2012  •  From
Germany proves it controls Europe, and ensures things stay that way.

European Union leaders announced that they had decided on banking regulation in the early hours of the morning, December 13. European leaders hailed it as a great success. But a success for whom?

Germany got its way on just about every issue. These bank regulations demonstrate who controls Europe now, and will help Germany continue its control into the future.

Under the agreement, the European Central Bank (ecb) will oversee Europe’s largest banks. No eurozone members will be able to opt out. There are a lot of details, but the gist of the matter is that Germany wanted a small, impotent new bank regulator, and that is what it got. There are a few reasons for this:

  • Germany wanted its local banks free of the regulation. Some of these banks are dodgy—state-owned and lending money for risky, local government projects. They’re an important part of how Germany’s local government and companies are funded, and Germany doesn’t want an external regulator prying into that.
  • It doesn’t want to distract the ecb from its core purpose of preventing inflation. Germany is very concerned with inflation and it worries that giving the ecb more to do will detract from its main function.

Out of Europe’s roughly 6,000 banks, only 150 to 200 will be subject to the ecb’s regulation.

But there is a more nefarious reason for Germany’s opposition. Currently, the eurozone is caught in a vicious cycle that drives nations to Germany. In Ireland, for example, the nation’s banks got into trouble. The government bailed out the banks, but this led to the government itself getting into financial difficulty. So Ireland was forced to turn to Germany and submit to its terms. The same process is going on in Spain right now.

The ultimate goal of the banking union is to break this cycle. Instead of the banks getting bailed out by the government, they’d get bailed out by a central EU fund. If this was put into place, German money would bail out the banks directly. The national governments would remain solvent. Germany would get no control over nations.

Handing over money without being able to control how it is spent is exactly what Germany is trying to avoid. From the German point of view it is quite reasonable—why hand over billions of euros if you can’t stop the nation you’re lending it to from repeating its mistakes and needing another few billion in a few years’ time?

But, no matter how it looks to Germany, the process forces nations to hand over sovereignty. Once a nation is bailed out, democratically elected governments no longer make decisions about how taxpayers’ money is spent. European officials do it. It is a mild form of occupation.

Last week’s deal will do nothing to stop this process. Countries whose banks get into trouble will still need to go to Germany for help. There may be some exceptions to this for the more “important” members of the eurozone. Spain, for example, was able to get a much better deal for bailing out its banks than Ireland.

Allowing a central fund to bail out banks, something that would really stop the cycle, was kicked into the long grass. And Germany doesn’t want Europe to make any progress on this any time soon. “Angela Merkel has made it clear that Berlin is not ready to pay for the resolution of other people’s banks,” wrote the Financial Times’ Wolfgang Münchau.

“The most I would expect is a small resolution fund, financed by the banks themselves—something too small to do the job,” he wrote.

German politicians, including Chancellor Angela Merkel, have called for something resembling a European superstate. This implies they will form a banking union with a real bank bailout fund at some point. But Germany doesn’t want it quite yet.

A European superstate is coming. But it will happen on Germany’s terms. Any efforts at integration, like this banking union, that come at the wrong time for Germany’s liking, won’t succeed.