Streetwise Professor

October 18, 2012

Banking Union: Tying Down the German Gulliver

Filed under: Economics,Financial Crisis II,Politics,Regulation — The Professor @ 12:50 pm

France’s President Hollande says that an EU banking union is the most important issue to discuss at the next Euro summit.

Even though it’s illegal.  Details, details.

Why is he so hot for this?  Two, related reasons.

First, a banking union is a gateway drug to a more complete political integration in Europe.  It is like the coal and steel pact that was the first stage to European integration.  But finance and banking are so pervasive, that it is a far more powerful way to achieve a broader political integration.

Second, it is a way of tying Germany even more tightly to France, and the rest of Europe.  If German financial institutions are tightly enmeshed in a European regulatory structure, it will be much harder for Germany to decide that the Euro isn’t worth the candle and leave.  This is vitally important to France, because it realizes that its financial position is extremely fraught.  This is also why French plans would include every bank in the regulatory net, including local banks like landesbanks, whereas the Germans want the banking union limited to big, systemically important entities.  Every bank that is included in the banking union is like a rope helping to hold down the German Gulliver and putting under the control of the European Lilliputians-acting under French direction, of course.

In other words, a banking union is a lot more about union than banking.  Hollande is being very Machiavellian, and it will be interesting to see how Germany plays this.

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  1. Hollande maybe a Machiavellian Prince, but he is going against the Gaullist tide of French independence and “resistance”. He misses the financial writing on the wall. It is more likely that the Euro collapses during his term, than a successful deepening of financial integration within the EU. Hollande should be docking his ship to a resurgent French Franc and popular support by nationalizing industry, Chavez-style. He mistakenly wants to be prince of Brussels, rather than the king of France. But Princes often make poor decisions…they are only consistent in their immorality. @SWP you are correct that his proposed banking union has nothing to do with banking whatsoever.

    Comment by scott — October 19, 2012 @ 1:25 am

  2. See also for international capital flows which are the inevitable result of such shenanigans. OP2012

    Comment by ObamaPutin — October 20, 2012 @ 12:05 pm

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