THE STATE OF THE EUROPEAN UNION

THE STATE OF THE EUROPEAN UNION

At the present time, the European financial

system consists of the European Central Bank and

a further nine national central banks, which issue

currencies other than the euro, and around 8,300

financial institutions. Compared with the United

States, business financing is much more reliant on

the banks, as against turning to the capital mar-

kets (that is to say, the issuing of shares and debt

securities on the part of companies).

The EU financial system also includes a pub-

lic financing body, the European Investment

Bank, a mechanism responsible for guarantee-

ing the financial stability of the euro zone (the

ESM), a Single Supervisory Mechanism (SSM)

overseeing the 130 financial institutions consid-

ered to be systemic –also within the framework

of the Monetary Union– and even a Single

Resolution Fund for winding up or restructuring

banks in crisis. The system of supervision and

restructuring is known as the Banking Union,

though it is restricted to the euro-zone countries

and does not include a common deposit guar-

antee fund. As well as these new institutions or

agencies, there is the proposed European Fund

for Strategic Investments, whose regulations

should be approved by no later than June 2015.

An important package of regulations has

been approved for the EU as a whole that in-

cludes, among other things, an increase in the

banks’ capital requirements.

The approach taken is peculiar to say the

least. That is to say, the regulations are the same

for everybody, but not the supervision. From a

technical point of view, it is questionable that a

choice has been made not to establish a bank-

ing supervisor for the EU as a whole, as there is

sufficient scope for it in the treaties. It actually

appears that it was taken for granted that there

would be opposition to this solution from some

member states. On the other hand, it must be

taken into account that the supervision has

regulatory effects, for which reason as time

passes it may not be so true that the regulations

will be the same for all member states, even if

the European Banking Authority was set up in

order to establish a so-called “single rulebook”.

Given that the choice was made to establish

the SSM at the European Central Bank, it is pos-

sible to infer that there will not be a single or

quasi-single supervisor for the Union as a whole

as long as the rest of the countries required to

adopt the euro (all of them except the United

Kingdom and Denmark) do not join.

Lastly, the European financial system lacks

the liquidity and stability that the availability of

public debt securities issued by the European

Union would give the financial markets, as oc-

curs with United States Treasury bonds.

If we assess the European financial system

from the point of view of how it performs with

regard to its chief raison d’être, which is to trans-

form savings into funding for companies and con-

sumers, the fact is that the Union is still far from

regaining the investment levels prior to the crisis.

This is partly because the financial system before

2007 was inflated as a result of the real estate

bubbles, but on the other hand the financial pan-

ic prompted a cut in the credit to the self-em-

ployed, SMEs and consumers that has lasted to

this day. Generally speaking, the banks have pre-

ferred to buy public debt of the member states

with cash loaned by the ECB at very low interest

rates rather than free up more credit to the real

economy. Neither the EIB nor the national devel-

opment banks have managed to make up for the

drop in investment and credit. The persistence of

high unemployment both in the euro zone and in

major economies such as Spain highlights the

problem of a suboptimal use of the resources and

real growth well below its potential.

By way of a summary, it could be said that

since 2008 the European financial system has