Kenny: EU must federalise response to banking crisis

Enda Kenny has taken a thinly veiled swipe at the European Central Bank and suggested it is time Europe “federalise” the response to the banking crisis.

Such an approach would see the new European bailout fund, rather than taxpayers in an individual state, recapitalise systemically important banks.

“As well as aggravating the financial crisis, the insistence to date that taxpayers in each member state must stand behind the entire liabilities of banks regulated in their jurisdiction has probably been the greatest reversal in the European Single Market since its foundation,” the Taoiseach said.

Although he did not name the institution, the ECB was largely seen as the architect of that policy.

“Cross-border banks that have helped to finance trade and investment integration across the EU are now under enormous pressure from national governments and regulators to withdraw behind their national borders,” Mr Kenny added. “After all, how can politicians ask their national taxpayers to effectively underwrite the overseas loans of banks regulated in their jurisdiction?”

He said a “new approach” to resolving Europe’s banking crisis was an “urgent priority” for the eurozone.

“One possible solution is to ‘federalise’ the response to the banking crisis in Europe. The new European Stability Mechanism (ESM) could be given the powers to directly recapitalise systemically important financial institutions.”

However, Mr Kenny stressed he was not suggesting a “United States of Europe” with major federal powers and resources similar to those of the US.

“Nor do I believe such powers are necessary for the euro’s stability and Europe’s long-term success. What is necessary, however, is the development of new economic tools that give greater substance and credibility to our commitment to a true economic union.”

In that respect, he said the fiscal compact treaty was a “first, important step” towards building “the type of economic union needed to support recovery and a single, stable currency”.

He urged the electorate to support the treaty in next month’s referendum.