Safeguarding the single market: How to achieve a balanced European Banking Authority
Proposals for a eurozone banking union, currently being negotiated, could in future make it virtually impossible for the UK and other non-euro countries to block financial rules written by and for the eurozone, in turn fragmenting the single market. This would not be in the interest of most EU member states – or the City of London.
In order to safeguard the single market, Open Europe proposes a revised voting system within the European Banking Authority, which would see eurozone members and non-eurozone members voting separately – with both groups having to endorse a proposal before it can be implemented. In turn, this could act as a template for how to reconcile further eurozone integration with the interests of all 27 member states, as the banking union develops.
Open Europe Director Mats Persson said:
“The UK Government is absolutely right to seek protection against the 17 eurozone members starting to write the rules for all 27 countries. A space simply has to be created in the EU for countries that do not intend to join the euro. The UK has leverage in these talks, including a veto over part of the banking union proposals.”
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- The UK is home to over 36% of the EU’s wholesale finance market, but only accounts for 8.2% or 3.6% – depending on the voting system used – of the voting weight within the EBA’s Board of Supervisors. In contrast, Germany accounts for roughly 13% of the market, but enjoys the same voting weight as the UK. This institutional bias against Britain is exacerbated by a proposal which will make the ECB the single supervisor in the eurozone – a structure which non-euro member states will be free to join. The UK will almost certainly remain outside the new structure.
Share of wholesale finance in the EU versus voting weight at the EBA
- The eurozone will in future have much a greater incentive to take a common position on banking matters, unlike non-euro countries. First, to avoid free riding on future potential joint backstops for banks, a much greater degree of regulatory harmonisation within the eurozone may be needed, which could spill over to the single market. The eurozone will want to avoid an ‘uneven playing field’ in the single market. Secondly, the Commission’s first banking union proposal envisions the ECB ‘coordinating’ the position of the euro countries at the EBA, with dissenting opinions actively discouraged. Thirdly, under the EU’s new voting rules, the eurozone will have an inbuilt majority in the EBA from 2014.
- In effect, if national supervisors within the eurozone agree to follow the ECB’s lead, the eurozone’s position will either likely (pre-2014) or automatically (post-2014) become the EBA’s position, on issues relating to standards for banks, restrictions on financial activities or the EBA’s own budget, for example. Therefore, the current proposal will significantly shift the balance of power in favour of the eurozone.
- The Commission’s proposed safeguards against eurozone caucusing and a two-tier single market are inadequate. Instead, the principle of ‘double’ Qualified Majority Voting (QMV) should be introduced. At the request of one national supervisor, this would see two separate votes taking place when the EBA considers a key decision: one amongst euro countries and a separate one amongst non-euro members. If a weighted majority cannot be achieved in both groups, the proposal should fall.
- This would deter eurozone caucusing and establish a positive principle for how to safeguard the single market in financial services. It should therefore be in the interest of both eurozone and non-eurozone members.
NOTES FOR EDITORS
1) For more information, please contact the office on 0044 (0)207 197 2333, or Mats Persson on 0044 (0)779 946 0691.
2) Open Europe is an independent think-tank calling for reform of the European Union. Its supporters include: Lord Leach of Fairford, Director, Jardine Matheson Holdings Ltd; Lord Wolfson, Chief Executive, Next Plc; Hugh Sloane, Co-Founder and Chief Executive, Sloane Robinson; Sir Stuart Rose, former Chairman, Marks and Spencer Plc; Jeremy Hosking, Director, Marathon Asset Management; Sir Henry Keswick, Chairman, Jardine Matheson Holdings Ltd; Sir Martin Jacomb, former Chairman, Prudential Plc; Lord Sainsbury of Preston Candover KG, Life President, J Sainsbury Plc; Michael Dobson, Chief Executive, Schroders Plc; David Mayhew, former Chairman, JP Morgan Cazenove; Tom Kremer, Chairman, Seven Towns Ltd.
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