The Fin Min claims that debate in recent months over the extent to which a fully operational banking union in Europe makes fiscal union redundant, is not going to solve the Union’s financial woos.
Tsakalotos thinks that the need to reform Europe’s economic and financial architecture, is imperative in the EU. “It is important to realise that there is only so much that private financial flows can do, and to recognise that such flows can be destabilising,” he writes.
He believes that the EU’s Bank Recovery and Resolution Directive, which is built in order to offer solutions to banking emergencies is inadequate to deal with a systemic banking crisis, in which case the state will inevitably intervene.
Tsakalotos doubts that “private financial flows, even after the completion of the capital markets union, can adequately compensate for public flows in the eurozone,” because of the existence of small and medium sized enterprises in the south of the EU.
He writes that “it is not clear that both public and private sectors in a eurozone economy hit by a future crisis would have anything like adequate access to the international financial markets.”
Tsakalotos argues that a banking union based on the US federal model will not have a positive effect in view of future financial crises and that those who argue for banking union as an alternative to fiscal union, which might lead to a renationalisation of fiscal policy, do not take into account the fact that it will “undermine the solidarity that is an essential pillar of an optimal currency area.”