The Governor of the Bank of Portugal, Carlos Costa, said that the process of integration of the Economic and Monetary Union (EMU) is incomplete because a common deposit guarantee system is lacking within the Banking Union. "His absence leaves the Banking Union's architecture unbalanced, putting risks to financial stability and helping to perpetuate the connection between banks and sovereigns," said Carlos Costa, in his speech opening the Banco de Portugal's Legal Seminar, which took place this Monday-
Indeed, although the first two pillars of the Banking Union have been implemented and operational – the Single Supervisory Mechanism since November 2014 and the Single Resolution Mechanism since January 2016 – the third pillar is still lacking: a common guarantee system of deposits.
Carlos Costa also discussed the existence of an "asymmetry" between those who have the power to decide on banking institutions (EMU) and who are responsible for ensuring financial stability (the member states). "The national authorities remain responsible for financial stability, but their performance is conditioned by the decisions on supervision, resolution and enforcement of competition rules that are taken at European level, he argued.
On the promotion of macroeconomic stability, Carlos Costa considered that "a centralized budget is lacking" that could still help "to cope with asymmetric economic shocks and cyclical fluctuations".
Before addressing the issue of Banking Union, the Governor of the Bank of Portugal made a number of comments on "the lack of adjustment of the European institutional framework" within the framework of the European integration project of EMU, whose lack of deepening entails "significant risks".
Treaty should ensure democratic accountability and ensure more transparent decision-making
Carlos Costa addressed the decision-making process in EMU and praised the Community method, but pointed out that it has been supplanted by enhanced cooperation and intergovernmental channels. According to the governor, the Community method which he maintains must be safeguarded "results in decisions that represent legal certainty for economic agents and for citizens in general, or for the Commission's actions [Europeia] as guardian of the Treaty [da União Europeia], or by the role of the Court of Justice of the European Union in scrutinizing and ensuring respect for European law ".
However, decision-making along the lines of enhanced and intergovernmental cooperation calls into question the solutions of the Community method. In the first case, although the enhanced cooperation route allows "bypassing blocking positions", the governor of the Bank of Portugal has maintained that it does not allow institutionalization of "what should not be institutionalized". On the intergovernmental route, Carlos Costa considered that "it is clear that the fundamental problem of transposing the same method of decision to the successive stages of the integration process has not yet been tackled."
In the Council's framework, for example, this need to function differently at different stages of integration led to the creation of the Eurogroup at the end of 1997. The Eurogroup was set up on an ad hoc basis to enable ministers of finance The Member States of the euro area could discuss among themselves the issues arising from shared responsibilities related to the euro. However, the Eurogroup – which is informal in nature and functions in the context of ECOFIN as a means of legitimation – does not solve the fundamental problem, which is euro area governance. Along the same lines, we are witnessing – in 2008 – the birth of the so-called Euro Summit, at the level of Heads of State or Government.
"As decisions taken in an intergovernmental seat – without the institutional institutional framework – the decision-making process is less scrutinized and implementation is always dependent on the will of the signatory member states, warned the governor of the Bank of Portugal.
In view of the foregoing, Carlos Costa supported a third way that would give the Treaty on European Union "the necessary flexibility to transpose the same rules for the different stages [da integração europeia]and thereby ensure that the decision-making process is transparent and that democratic accountability is ensured.
Carlos Costa challenges Euro summit to deepen EMU to avoid future crises
On December 14th, the Euro Summit will take place and the governor of the Bank of Portugal called on the European leaders' commitment and willingness to negotiate to clarify the direction of the European project. "Otherwise, solving the problems that hamper the balanced functioning of the European Union will continue to be delayed, making it vulnerable to potential future crises," warned Carlos Costa.
Europe is now a more complex and heterogeneous reality than at the beginning of EMU, with a greater number of Member States and a smaller sharing of the purpose and the meaning of this construction. At the same time, it has an institutional framework that did not adjust to the evolution of the integration process. (…) In the times of division that we are going through and in the light of the progress of the negotiations on key issues for EMU – such as the conclusion of the Banking Union – I must confess my skepticism about the concrete progress that could result from the Summit.