Banking union: the disadvantages of opportunism

The EU’s approach to what it describes as “banking union” is not what one would design with a clean slate. It reflects the political constraints and the path of history. This paper compares the institutional and operational structure of “banking union” that has been decided upon with a complete structure. It focuses on the distortions caused by a system based on the euro area, which excludes Europe’s most important financial market. It considers the difficulties posed for the Single Resolution arrangements and the European Deposit Insurance System by the continuing problem of the relation between weak banks and over-indebted sovereigns.