29 Jun 2013
Flash: No agreement on risk sharing in EU – Goldman Sachs
FXstreet.com (New York) - According to Economics Research Team at Goldman Sachs, “The recent situation with the EU government is more complicated when it comes to the SRM and the deposit guarantee.”
At the core of the discussion is how Euro area countries should share the risk involved in making these two pillars of the Banking Union operational. Given the (potentially significant) inter-country transfers that could result, we expect negotiations to remain difficult, in particular in relation to the common deposit guarantee.
A well-designed Banking Union would clearly improve the institutional set-up of the Euro area. But we do not view it as either a necessary or sufficient condition to overcome the current crisis. “In our view, Banking Union is not the only way to break the vicious circle between banks and sovereigns. We see no reason why the benefits of the SSM cannot be reaped without the other two pillars being in place.” the team adds. Indeed, the ECB’s announcement of the OMT has proved sufficient to turn the ‘vicious circle’ into a ‘virtuous’ one. That said, the OMT places the ECB in a difficult position, given the sensitivities surrounding ECB asset purchases. Achieving Banking Union could relieve the ECB of the responsibility to backstop the banking system via the OMT and national governments, allowing it to refocus on its original narrower role.
At the core of the discussion is how Euro area countries should share the risk involved in making these two pillars of the Banking Union operational. Given the (potentially significant) inter-country transfers that could result, we expect negotiations to remain difficult, in particular in relation to the common deposit guarantee.
A well-designed Banking Union would clearly improve the institutional set-up of the Euro area. But we do not view it as either a necessary or sufficient condition to overcome the current crisis. “In our view, Banking Union is not the only way to break the vicious circle between banks and sovereigns. We see no reason why the benefits of the SSM cannot be reaped without the other two pillars being in place.” the team adds. Indeed, the ECB’s announcement of the OMT has proved sufficient to turn the ‘vicious circle’ into a ‘virtuous’ one. That said, the OMT places the ECB in a difficult position, given the sensitivities surrounding ECB asset purchases. Achieving Banking Union could relieve the ECB of the responsibility to backstop the banking system via the OMT and national governments, allowing it to refocus on its original narrower role.