European leaders will promise to complete the EU’s banking union in the future, but will leave it to their finance ministers to work out when, their draft conclusions showed. Completion of the banking union would mean setting up a controversial common deposit insurance scheme. This would sharply reduce the possibility of a major banking crisis in the 19 countries sharing the euro. And this results in boosting the market confidence in the euro and also the demand for the currency.
In several euro zone countries this issue is highly sensitive. Euro zone finance ministers are stuck with their non-euro colleagues from other EU countries to agree on the deposit guarantee scheme for years. The draft says that the reiterate their full commitment to the completion of the Banking Union and capitalizing on recent discussions. It invites (EU finance ministers) to agree on a consensual basis, on a stepwise and time-bound work plan on all outstanding elements needed to complete the Banking Union.
The EU-wide deposit guarantee is the main element, as there already is a single bank supervisor and a single resolution mechanism for banks that fail. But before the European Deposit Insurance Scheme (EDIS) is agreed, Germany and some other countries say other problems have to be cleared up. Banks need to be less in danger of collapsing in the first place, so that they would not go under if the sovereign they are most exposed to cannot redeem its bonds. Euro zone officials said no progress on any of the topics is likely before late September, as the German parliamentary elections will be conducted. But even with a new German government, this progress will be hard to achieve before France holds its election in May 2022, which is when serious talks might begin.
