This week, the Commission presented a redraft to a common European deposit insurance scheme. The negotiations concerning this final building block of the Banking Union have stalled since 2015 because important Member States fear that their national deposit insurance schemes will have to take responsibility for the banks of other countries, which have not yet done their homework.


The discussion concerning the future realignment of the Eurozone and the Banking Union is slowly but surely moving into gear. Following the announcements by Commission President Juncker in his State of the Union Address in September, the Sorbonne speech by the French President Macron as well as the elections in Germany, a short window of opportunity is now opening to implement the Eurozone reforms, which have been discussed and announced for quite some time. Hence, Council President Donald Tusk has invited the Heads of State and Government to attend an informal summit in December, where issues such as a separate Eurozone budget, a European Finance Minister, but also the necessary future steps on completing the Banking Union shall be discussed.


In view of the informal summit of the Heads of State and Government in December, the European Commission this week published its ideas in a Communication as to how the so-called Banking Union shall be completed at last. It is common knowledge that important initial measures towards a Banking Union have already been adopted at European level; for example, a European supervision over the largest systemically relevant credit institutions, which is already guaranteed by the European Central Bank. Already in force are also common Europe-wide rules as to how banks in crisis situations can be wound down in such a way that chain reactions concerning the entire financial system can be avoided and that in particular taxpayers do not again have to foot the bill when it comes to rescuing the banks.


However, the third missing element of the Banking Union, namely a European deposit insurance scheme, has not yet made any progress. The Commission had already presented a respective proposal in 2015; however, some Member States, with Germany at the forefront, considered it as going too far, which is why it has been stuck in the European legislative process to this day.


The core question is whether in cases of major crises in another Member State, funds from national deposit insurance schemes may be used to support that country's system. Here, Germany and Co. fear a communitarisation of risks, if some Member States still have significant non-performing loans in their bank balance sheets. In order to overcome this political deadlock, the Commission this week presented a modified proposal for a European deposit insurance scheme in a Communication, which shall address these concerns in more detail. At the same time, it announced a comprehensive package of measures for spring 2018, which is aimed at reducing the high stock of non-performing loans.


The initial reaction by Germany to the Commission’s new proposal is rather restrained, to put it mildly. The German banking industry as well as key MEPs such as the Green Sven Giegold describe the proposal as “old wine in new pipes” and demand that first of all the banks’ old debt has to be cleaned up before a Europe-wide deposit insurance scheme could be introduced.


Hence, whether the modified proposal of the Commission, which was presented this week, is sufficient to get the deadlock in the debate moving again remains to be seen. It is likely that the Heads of State and Government have to make a major effort at their meeting in December to look for joint solutions at the highest level, if the European banking system shall indeed be made more crisis proof.


Further Information:

Press release of the Commission on completing the Banking Union

Communication on completing the Banking Union (English only)

Sven Giegold on the Communication of the Commission