The EU approved a singular banking overseer yesterday, which is the foundation of centralized banking in Europe. This step is surely significant, but still not enough. We need a mechanism that will provide bailouts in case financial institutions fail.
Even though Michel Barnier, the EU commissioner responsible for internal markets and services, assures that the agreement about a mechanism like this will be ready by the end of the year, we will have to wait and see whether Spain will reach the agreement sooner.
If that were to happen, another obstacle would need addressing: how will the Mede recovery fund work? A strong system that protects taxpayers is needed, but there seems to be more and more criteria for how and when the banks recapitalize through the Mede.
Whereas for Germany the Mede would be for extraordinary circumstances, Spain is already an extraordinary case. Merkel is so staunchly against bailouts, like she was against a pan-European eurobond, that in negotiations with German Social Democrats, she was ready to accept an increase to the minimum wage so long as eurobonds were off the table.
A step toward central banking in Europe is a positive change, because Spain will be able to rely more on the EU?s guidance than the Bank of Spain?s occasional regulatory whims. Much work is needed to create a successful centralized banking system, although the effort will pay off if the rules of the game are consistent and followed across the continent in order to avoid another crisis.