EU banking deal ‘won’t help SMEs’

Proposals for an EU banking union hammered out over the past few days are unlikely to ease the credit crunch for SMEs.

Moreover, it remains to be seen whether it will stem the banking crisis that has paralysed the region over the past few years.

“It is going to be much different from now on than it was two years ago. But it is quite a shallow banking union and far from the deep banking union that some had been calling for,” says Philip Lane, economics lecturer at Trinity College Dublin.

Under the new template, which still has to be ratified by the European Parliament, there will be a single supervisory mechanism for all eurozone banks, which will be located in the ECB.

There will also be a single resolution mechanism for failing banks, which will be controlled by the European Commission. This will transfer the power to a single agency to close down a bank. The draft proposal also plans to give this authority a €60bn resolution fund to absorb losses of failed banks.

The aim of banking union is to never again expose the European taxpayer to banking losses. The new resolution regime would see a ‘bail in’ of creditors starting with shareholders, then junior debt, senior bondholders and finally uninsured depositors.

There is no mutualisation of debt in the form of a deposit insurance scheme. The prospects for a much deeper banking union look slim over the next three to five years because it is very hard to reach agreement in times of crisis, says Mr Lane.

Meanwhile, around 1,000 SMEs and start-ups will share in a €100m fund from the European Commission’s Future Internet programme.

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— Additional reporting by Ann Cahill in Brussels.


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