Revue Européenne du Droit
The future of the Banking Union after the pandemic
Issue #3
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Issue #3

Authors

Pedro Gustavo Teixeira

La Revue européenne du droit, December 2021, n°3

The groundwork of European power

Almost a decade ago 1 , the creation of the Banking Union in the midst of the euro crisis was hailed as the confirmation of the deepest commitment of the Member States to European integration. The transfer of supervisory powers to the ECB was meant to tackle the crisis by enabling risk-sharing with regard to the banking sector, which would have been the first time ever in the single market. Eventually, it did not materialise, and risk-sharing remains the impediment to the completion of the Banking Union as intended. The single banking market has not integrated, if anything, to its potential. Today, risk-sharing features prominently as the main component of the European response to yet another existential crisis, the pandemic emergency. This contribution aims in this context at relating the discussion about the future of the Banking Union with that of the whole Union after the pandemic. They are inextricably linked as contingent on the development of a European stabilisation capacity to safeguard integration and its achievements. In turn, such capacity requires enduring risk-sharing, which has been continuously elusive in the history of European integration. Member States are keen to share the benefits of integration but reluctant to share its risks and costs. Therein lies the question for its future 2

I. Origins 

At the Euro Summit of 28 June 2012, the leaders of the euro area were confronting an existential crisis for the Monetary Union. Successive measures to address the sovereign debt crisis since the financial assistance to Greece two years before had failed to halt contagion across Member States. The contagion had now spread to Italy and Spain, as the interest rates of their national debt reached unsustainable levels. It gave rise to fears that further financial assistance was becoming unfeasible and that sovereign defaults could follow. At dawn of 29 June, a short but convoluted statement announced the most consequential move in European integration since the Maastricht Treaty was signed in 1992: the transfer of the national competences of banking supervision to the ECB. It was the first pillar of a Banking Union 3 .

According to the statement, the decision of the Euro Summit aimed at breaking the vicious circle between banks and sovereigns. This had arisen out of the widespread rescue of the banking sector with public funds since the great financial crisis of 2008, which created a mutual dependence between the soundness of banks and the finances of Member States. The way forward would be to allow the European Stability Mechanism (ESM) – which was created as an intergovernmental organisation outside the Treaty to provide assistance to Member States – to recapitalise directly euro area banks 4 . Since the ESM is owned by all euro area Member States, there would be joint liability for rescuing banks. It would thus avoid worsening the finances of those Member States with an undercapitalised banking sector. This represented a momentous step towards risk-sharing, which previously seemed anathema in the Monetary Union. It created however a dilemma between addressing the crisis and preventing “moral hazard” on the part of banks and their respective Member States, which could conceivably lack the incentives to make the most out of European funds. The answer was that European liability then required European control. Accordingly, the Euro Summit decided that the ability of the ESM to directly recapitalise banks was dependent on the establishment of a Single Supervisory Mechanism (SSM) involving the ECB. A European authority would have the mandate to supervise the banking sector in the interest of all Member States and respective taxpayers. There was thus a quid pro quo: risk-sharing among Member States implied the loss of national sovereignty over the banking sector 5

The significance of this move in European integration cannot be underestimated. It aimed at addressing one of the main flaws of the framework of both the single financial market and the Monetary Union. The great financial crisis of 2008 first laid bare this flaw: despite the deeper financial integration since the introduction of the euro in 1999, there were no powers to safeguard financial stability at the European level. All the crisis prevention and management functions remained at the national level, including banking supervision, lender of last resort by central banks, deposit insurance schemes, and the capacity to recapitalise banks with public funds. Member States resisted any transfer of powers to the European level which could impinge on their national fiscal sovereignty. As a result, when the great financial crisis hit European shores, Member States rescued their domestic banks with public funds and ring-fenced their markets, ending up by renationalising the single financial market. The crisis thus exposed the illusion that the single market was a positive sum game, where only benefits were shared with no risks or costs for Member States, their citizens, depositors, the economy, and fiscal resources 6 .  Similar dynamics were at a play in the sovereign debt crisis. The so-called “no bail-out clause” under Article 125 of the TFEU was interpreted as preventing any risk-sharing in the Monetary Union. As a disciplinary device, Member States were solely responsible for their finances and for safeguarding the financial stability in their jurisdictions. This helped create the vicious circle mentioned above between banks and sovereigns, which fuelled the euro crisis. The Monetary Union was left without stabilisation capacity at either the European or national levels, which provoked an existential crisis 7 .

The preservation of the euro thus required European solutions. The Banking Union, a permanent and complete transfer of powers close to the core of national sovereignty, emerged then out of the existential need for risk-sharing among Member States. As Luuk van Middelaar has put it, Member States coupled a decision to address the crisis in the short-term – the direct recapitalisation of banks by the ESM – with a long-term commitment to European integration: the creation of the Banking Union 8

II. Risk-Sharing 

The foundation of the Banking Union was the transfer of banking supervision competences to the ECB. It was based on an enabling clause of the Treaty – Article 127 (6) of the TFEU – which reflected the compromise at the time of the preparatory works of the Maastricht Treaty not to combine central banking and supervision in the ECB, but to leave open that possibility in the future. The activation of this clause defined the “genetic code” of the Banking Union. It implied the centralisation of exclusive competences in an independent European authority, which applies and enforces directly European law. Its legal acts are subject to the direct jurisdiction of the European Court of Justice and have thus primacy over national authorities and laws. This blueprint for the exercise of banking supervision by the ECB was followed for the second pillar of the Banking Union, a Single Resolution Mechanism (SRM) with a Single Resolution Board (SRB) as its European authority. Given the different legal basis – Article 114 of the TFEU – the SRB was established as a European agency, which requires the involvement of the Commission and Council in its decision-making 9

The change operated by the Banking Union involved, therefore, enclosing the banking sector within a European institutional and legal order detached from national competences. This implied, in turn, the Europeanisation of the banks subject to the jurisdiction of the ECB and the SRB. The part of the single banking market within the Banking Union was unified as a result. This has several implications, including the end of the relationship between home- and host-country authorities, as competences are centralised in European authorities. Most importantly, Member States can no longer intervene either to protect or rescue their respective banking sectors 10 .

Given that risk-sharing was the main rationale for the Banking Union, how does it then operate within it? The straightforward answer is that the original quid pro quo did not materialise as initially envisaged: there was no transition from the Member States’ liability for the banking sector to European liability. The possibility that the ESM could recapitalise banks directly was not utilised and later discarded. Instead, the regime introduced by the Bank Recovery and Resolution Directive, and reflected in the Regulation establishing the SRM, provided the framework for private – rather than public – risk-sharing. The use of public funds to rescue banks became effectively prohibited 11 . Banks which are failing or likely to fail are mandatorily subject to resolution, if the SRB considers that there is public interest. Otherwise, the banks are subject to liquidation. Once a bank enters into resolution, it is mandatory in nearly all cases to bail-in its shareholders and creditors. In other words, the liabilities of the bank are cancelled by a decision of the SRB in order to recapitalise the bank. For this purpose, it was the first time that European law provided instruments to an authority to affect private property rights. The SRM also comprises a Single Resolution Fund to finance the resolution actions by the SRB. It is supported by annual levies imposed on banks and not by public funds. Therefore, the Banking Union operated a shift towards the privatisation of risks in the banking sector. The possibility of Member States intervening to stabilise markets was replaced by making market participants liable for the risks of an integrated market. The prohibition of public bailouts removed the mutual dependence between banks and Member States 12

Together with the resolution regime under the SRM, it was intended that risk-sharing would also take place through a European Deposit Insurance Scheme (EDIS), the third pillar of the Banking Union. A EDIS would aim at ensuring equal treatment among depositors throughout the Banking Union, independently of the national location of banks and deposits. It would thus also sever the remaining link between banks and Member States since deposits remain protected by national schemes with divergent features. This implies that, depending on the level of protection at the national level, the soundness of banks remains somewhat correlated to their location. Moreover, it also implies that the implicit value of deposited euros may vary within the Monetary Union across Member States, as demonstrated by the Cypriot and Greek banking crises where capital controls and restrictions on deposits were imposed. Accordingly, EDIS would mutualise the risks regarding the loss of deposits in the Banking Union. However, the prospect of its establishment has faced significant obstacles from Member States. Even though EDIS would be filled by contributions from banks, the main concern is that it could lead to the transfer of funds between Member States and create moral hazard. Funds originating from sound banks could end up being used to cover deposits from weak banks, which could in turn reduce their incentives to reduce risk-taking 13 .  

Thus, the Banking Union moved away from its original rationale of enabling joint liability of Member States. The legal and institutional Europeanisation of the banking sector did not lead to public but to a form of private risk-sharing in the form of the resolution regime of the SRM. This was justified by several reasons, notably the political will to prevent further public bailouts after the extensive rescues during the great financial crisis, as well as the preservation of national fiscal sovereignty and avoiding moral hazard among Member States. Any form of mutualisation of risks, which could entail the distribution of funds across Member States, thus remains an obstacle to further integration as confirmed by the difficulty in setting up the EDIS so far. This is revealing of the far-reaching interpretation of the bail-out prohibition under Article 125 of the TFEU. It is fundamentally why the Banking Union remains incomplete and has not led to a truly integrated European banking sector: risk-sharing is still elusive in European integration 14

III. The Legitimacy Question 

The main argument against risk-sharing between Member States is that it would mean a profound transformation in the integration process. It would imply accepting the reallocation of budgetary funds from one Member State to another. This presupposes, not only the strengthening of political integration, but also new sources of supranational democratic legitimacy to underpin such use of funds. It would therefore require a new social contract among Member States beyond the current Treaty. Until then, the argument goes, only regulatory/technocratic competences, without impacting on public funds, could be transferred to the European level 15

In this context, the Banking Union represented a step forward in the integration process: the transfer of competences which – albeit regulatory/technocratic in nature – were previously close to national sovereignty, given their implications for the banking sector and economy of Member States. Therefore, the exercise of European banking supervision and resolution powers potentially would have, more than ever before, a distributive impact for Member States. This institutional novelty raised the question of how to make the exercise of such powers legitimate on a continuous basis. The answer provided by the founding regulations of the SSM and the SRM was to anchor the legitimacy of the Banking Union on the combination of several mechanisms 16 .

The first was to narrow the scope of the powers of the ECB/SSM and the SRB as much as possible to the application and enforcement of European law. Except for organisational purposes, the ECB/SSM and the SRB have no generic regulatory powers. Moreover, there are legal safeguards obliging the ECB/SSM and the SRB to consider both European and national interests in their decisions. For example, Article 1 of the SSM Regulation sets as an objective of the ECB’s supervisory tasks to contribute to financial stability both in the Union and in each Member State. This implies that the judicial review of supervisory and resolution decisions is an important source of legitimacy of the Banking Union 17 .

The second related mechanism was to provide the ECB/SSM and the SRB with a strong institutional independence equivalent to that of the ECB’s monetary policy. They cannot seek nor take instructions from any European institution, national government or authority, or any other public or private body. Supervisory and resolution decisions should be based on technical expertise in line with European law, thus not reflecting political and distributive choices. As in the case of monetary policy, the transfer of competences from the national to the European level is, in itself, a reason for the independence of a policy function. Supranational powers cannot be exercised to the benefit of any Member State or group. It is particularly so regarding policies with potential distributive effects like banking supervision and resolution which required before the Banking Union a proximity to national political institutions. Otherwise, they lose credibility and at the limit may lead to disintegration. The Banking Union thus led to the insulation of banking supervision and resolution from both national and European politics as a source of legitimacy 18

The third mechanism consisted of creating, for the first time, a framework of multi-level accountability for the exercise of European competences: the ECB/SSM and the SRB are directly accountable to the European Parliament and the Council – in line with the principle that accountability for the exercise of European competences is at the level of the EU institutions – but they are also obliged to report to national parliaments. National parliaments are thus involved in the regular monitoring of the functioning of the Banking Union. The recitals of the SSM and SRM regulations justify their role due to the potential impact that supervision and resolution decisions may have on public finances, institutions, and the markets in Member States. Accordingly, the distributive effects of banking supervision and resolution in individual Member States justify a closer connection than before between the exercise of European competences and national political institutions 19 .

Together, these three mechanisms are the main sources of legitimacy of the Banking Union, which may be characterised as being largely an “output legitimacy”: the exercise of competences by a public authority is legitimate if it demonstrates that it has delivered the results intended by the legislator. 20 In this sense, European banking supervision and resolution are legitimate policy functions to the extent that they comply with European law, their respective decisions are based on expert judgements independent from politics, they provide explanations on policy outcomes to the European Parliament and Council, and also report to national Parliaments on their activities. The aim is to mitigate concerns about the distributive implications of ECB/SSM and SRB decisions at both the European and national levels. 

Arguably, such mechanisms only provide an incomplete answer. Output legitimacy is not sufficient to provide a lasting basis for risk-sharing between Member States, which also requires democratic control as an “input legitimacy”: in other words, the setting-up of European political structures to underpin such risk-sharing. Therefore, the future of the Banking Union, including the development of risk-sharing instruments such as EDIS, will require arrangements which ensure a broader legitimacy. Until then, the Banking Union will remain primarily based on these sources of legitimacy and thus incomplete. 21

IV. The Response to the Pandemic 

Following the sovereign debt crisis, the European response to the pandemic emergency in early 2020 represented another steppingstone in risk-sharing among Member States. At the summit of 21 July 2020, the European Council agreed on a Next Generation EU (NGEU) programme to support the recovery of Member States. The Council then adopted an exceptional financial assistance mechanism to address the economic and social consequences of the pandemic, as an expression of solidarity among Member States, and based on Article 122 of the TFEU. It included a European Union Recovery Instrument to be financed up to an amount of 750 billion euros. It authorised the Commission to borrow the necessary funds through the issuance of bonds in financial markets. Under the NGEU, this amount comprises 390 billion euros of grants and 360 billion euros of loans to Member States. The programme is exceptional and temporary. It is limited to supporting the recovery from the crisis and is subject to conditionality as to the objectives that Member States may pursue with the funds. Moreover, the access to EU funds is subject to the condition that Member States are found to be compliant with the “rule of law” 22 .

Along with this European fiscal response, the ECB enacted in March 2021 a Pandemic Emergency Purchase Programme (PEPP), which reached in June 2021 an envelope of 1,850 billion euro 23 . In the context of the Banking Union, the ECB/SSM adopted for the first-time centralised decisions to address a crisis. It took several supervisory measures to ensure that the banking sector would continue to fund the economy. The measures included allowing banks to use capital and liquidity buffers, providing capital and operational relief, and restricting the distribution of dividends to shareholders to increase their capacity to absorb potential losses. The ECB/SSM estimated that such measures would enable banks to potentially finance the economy with up to 1,800 billion euro of loans 24 .

The European response to the pandemic thus stands in sharp contrast to the management of the sovereign debt crisis. Instead of being largely based on intergovernmental arrangements outside the Treaty, as was the case previously, the assistance to Member States is now provided directly by the Union through the institutions and provisions of the Treaty. The “no bailout clause” of Article 125 of the TFEU was not considered – as it was for the sovereign debt crisis – an impediment to tackle the crisis at the European level within the Treaty. 

In this context, the European Union Recovery Instrument provides significant risk-sharing between Member States. The EU bonds will be serviced by the EU budget, which implies that all Member States will contribute to it. Furthermore, such risk-sharing has also significant redistributive effects. The funds will be made available in the form of both grants and loans to Member States. The allocation key used for their distribution is asymmetric among Member States, depending on the impact of the pandemic on their respective economies and national incomes. In other words, the financial assistance under the NGEU is geared towards the most impacted and more vulnerable Member States. Similarly, as mentioned above, the actions of the ECB, both as central bank of the Monetary Union and banking supervisor of the Banking Union, had considerable economic and financial impact, further reinforcing the overall response 25

The pandemic emergency has thankfully not turned into a repeat of the dynamics underpinning the sovereign debt crisis, notably the fragmentation of the single market and the vicious circle between the soundness of sovereigns and banks. The fact that there was a resolute fiscal, monetary, and supervisory response by European institutions was arguably decisive in this respect. The NGEU programme funded by European debt assuaged concerns about the capability of Member States to cope with the consequences of the pandemic, and without putting into question the sustainability of national finances. The PEPP programme of the ECB ensured the continued transmission of monetary policy and equally favourable financing conditions to the economy across the euro area. And the centralised supervisory measures of the ECB/SSM enabled banks to act more as shock absorbers rather than amplifiers, as was the case previously, and provided a level playing field among banks, preventing stigma related to their place of origin. All in all, it appears that decisive risk-sharing and actions at the European level made a difference compared to the management of the sovereign debt crisis. In this context, it is revealing that there was no recourse to the intergovernmental ESM to issue European debt, and that Member States have not taken up the loans made available by it at the time of writing 26 .

This leaves the question of whether, and to what extent, the response to the pandemic implies an unreversible step of the Union towards risk-sharing. The very large issuance of European bonds under the NGEU from 2021 until 2026, using a wide range of maturities of up to 30 years, and to be repaid until 2058, certainly represents an extensive commitment to a common sovereign safe asset: a financial asset which is low risk, highly liquid, and largely disentangled from the sovereign risk of individual Member States. The advantages of such an asset are that it provides long-term, stable, and low-cost funding to the economic and social recovery, while being a concrete political symbol of the solidarity between Member States. At the same time, it supplies the Monetary Union and the single market with what is missing to underpin financial integration compared to the United States, i.e., a genuine European safe asset for investment, storing of value, and pricing benchmark for riskier assets. Albeit temporary and justified by an unprecedented emergency, this demonstrates the feasibility and the value of a safe asset in providing stability for the Union in its various dimensions: economic, financial, social, and political 27

V. The Future of the Banking Union 

The Banking Union is the most advanced form of European integration with a unified system of law, institutions with exclusive competences and enforcement authority, subject to judicial review by the Court, and accountable to the Parliament and the Council. It operated a ‘fusion of markets’, whereby market participants are indistinguishable by their origin and subject equally to European law. Its emergence confirms the supranational nature of European integration, as described by Jean Monnet: “to adopt common rules which our nations and their citizens pledge themselves to follow, and to set up common institutions to ensure their application” 28 . However, although it is a creation of European law, its legal and institutional construction is not sufficient by itself to maintain integration 29

The paradox of the Banking Union is that, even though risk-sharing stood at its origin, it is now the main obstacle for its completion. Nearly ten years after the Euro Summit of 28 June 2012, the Banking Union remains incomplete. Despite the centralisation of banking supervision and resolution competences under European law and institutions, the full features of a single banking market have not yet been achieved. Although the resilience of the banking sector has improved, there is still considerable market segmentation along national borders. The disintegration since the great financial crisis of 2008 has not been significantly reversed. For example, the share of exposures of banks to counterparties in other Member States within the Banking Union has hardly changed since its creation. There is also limited consolidation between banks based in different Member States. And banking groups continue to expand their business through subsidiaries rather than through branches and the direct provision of services, as intended by the single passport introduced as early as 1993. The implication is that the capital and liquidity of banks is still largely retained in the Member States where they operate, rather than being freely transferrable across the Banking Union. This questions the centralisation of banking supervision and resolution, which aimed at eliminating the home- and host-country frictions to integration. The whole potential of a single banking market is thus untapped 30

Thus, the future of the Banking Union rests on effective risk-sharing mechanisms. The first one is the establishment of EDIS as its third pillar. The European mutualisation of deposit insurance would remove one of the potential hindrances to the free flow of capital and liquidity of banks across Member States’ jurisdictions. The protection of deposits would no longer relate to a bank having sufficient capital and liquidity at the local level. Moreover, as indicated above, it would further detach the soundness of banks from Member States, given the uneven dependability of national deposit insurance schemes. 

The second risk-sharing mechanism would be the emergence of a permanent European safe asset. Banks are linked to the Member State of their location since they are obviously exposed to developments in the economy, and because they typically hold national sovereign debt as their safe asset. They remain thus vulnerable to adverse developments in sovereign risk, which can increase their funding costs, affect their profitability, and ultimately their sustainability. A European safe asset – such as the EU bonds issued in the context of the NGEU – would therefore enable banks to reduce their exposure to purely national risks and diversify their balance sheets. The stability of the banking sector would no longer be correlated to that of individual Member States. In other words, it would be the conclusive step to economically and financially “Europeanise” banks beyond the legal dimension operated by the Banking Union. The original objectives of the Euro Summit of 28 June 2012 would finally be fulfilled 31

Conclusion: European Integration beyond the Pandemic

What can this brief analysis of the Banking Union bring to the understanding of the wider European integration process? 

There was a succession of three epochal crises in Europe in little more than a decade: the great financial crisis in 2008, the sovereign debt crisis starting in 2010, and the pandemic emergency starting in 2020. The management of these crises can be depicted as an evolutionary – learning by doing – process. In the first one in 2008, there was no risk-sharing among Member States or meaningful actions at the European level. All competences for safeguarding financial stability remained national. As a result, the single banking market quickly disintegrated as Member States took uncoordinated measures and ringfenced their respective jurisdictions to contain contagion, with arguably all remaining worse off compared to a European response. The ensuing sovereign debt crisis was managed through a piecemeal approach, as it intensified towards more and more coordinated actions and risk-sharing among Member States. Such approach was however largely based on intergovernmental and temporary arrangements outside the Treaty, a combination of national solutions, including the setting-up of the ESM. This reflected the reluctance of Member States to commit to any permanent European stabilisation capacity. Such hesitation arguably magnified the crisis over time until it reached its peak. The start of the Banking Union with the transfer of supervisory competences to the ECB was then justified to enable the direct recapitalisation of banks by the ESM, which eventually did not come to pass. Finally, the so far effective response to the pandemic was by contrast fully based on the actions of European institutions within the Treaty, including risk-sharing with redistributive effects among Member States.

There are many lessons to draw from this sequence of approaches to crisis management. The most apparent is that European integration is not sustainable without being underpinned by a stabilisation capacity. Until then, integration will be incomplete and can be reversed rather suddenly. Paradoxically, since this fact is only apparent with a crisis, integration will then progress from one crisis to another. It takes a threat for Member States to realise that in order to reap the benefits of integration, they must then share its risks and costs. It is in this sense that European integration is inherently crisis prone. 32  

The setting-up of a true stabilisation capacity, however, cannot be merely underpinned by output legitimacy, which has been the dominant mode in the integration process thus far, including regarding the Banking Union. As integration deepens in the Union, there will be more and more redistributive implications across Member States. Depoliticised technocracy will likely not be sufficient to justify them, particularly during crises 33 . And if such implications are not construed as fair and legitimate, it will give rise to contestations and ultimately the rejection of the European project. Accordingly, further sources of supranational democratic legitimacy need to be explored for the future of the Union. This corresponds very much to the blueprint already depicted in the Van Rompuy Report of 2012 titled “Towards a Genuine Economic and Monetary Union”, and also the Five Presidents’ Report of 2015 on “Completing Europe’s Economic Monetary Union”. These reports envisage over time a Union comprising an Economic Union, a Financial Union, and a Fiscal Union, which would be underpinned by democratic accountability 34 . Ultimately, however, an integrated Europe cannot be insulated from democratic politics. Political integration between Member States will likely become the end-destination. Therefore, this contribution may well conclude with another quote by Jean Monnet hinting at his intuition on the ultimate form the Union might take: “marché unique – monnaie unique – fédération 35 .

Notes

  1. Opinions expressed are those of the author and not necessarily those of the ECB
  2. Parts of this contribution recall arguments made extensively in Pedro Gustavo Teixeira, The Legal History of the European Banking Union (Hart Publishing 2020).
  3. Euro Summit, Statement, 29 June 2012, available at www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/131359.pdf.
  4. The establishment of the ESM in 2013 was preceded by an amendment to Article 136 TFEU, which enabled the Euro Area Member States to establish a mechanism to safeguard the stability of the euro area by granting financial assistance subject to strict conditionality. This amendment confirmed the compatibility of the ESM with European law, including the bail-out prohibition, as the Court concluded in the Pringle case (case c-370/12). See, Alberto de Gregorio Merino, ‘Legal Developments in the Economic and Monetary Union during the Debt Crisis: The Mechanisms of Financial Assistance’ (2012) 49 Common Market Law Review 162–164.
  5. On the initial concept of the Banking Union, see Jean Pisani-Ferry and Guntram Wolff, ‘The Fiscal Implications of a Banking Union’ (Bruegel 2012) Bruegel Policy Brief.
  6. On the management of the financial crisis in Europe, see Teixeira (n 2) 135–149. 
  7. For an account of the rationale of the “no bail-out clause”, see Vestert Borger, The Currency of Solidarity (Cambridge University Press 2020) 114–129. On the constitutional implications of the crisis, see Agustín José Menéndez, ‘The Existential Crisis of the European Union’ (2013) 14 German Law Journal 453, 453.
  8. See, Luuk van Middelaar, Quand l’Europe improvise: Dix ans de crises politiques (GALLIMARD 2018) 96–100.
  9. On the controversial use of Article 114 of the TFEU as the legal basis for the SRM, see Tomi Tuominen, ‘The European Banking Union: A Shift in the Internal Market Paradigm?’ (2017) 54 Common Market Law Review 1359, 1374–1377.
  10. On the mechanics of Article 127 (6) of the Treaty, see Teixeira (n 2) 223–225. On its history, see Harold James, Making the European Monetary Union: The Role of the Committee of Central Bank Governors and the Origins of the European Central Bank (Belknap Press of Harvard University Press 2012) 313–317.
  11. The only narrow possibility left under the Bank Recovery and Resolution Directive (Article 32.4) for a state to inject public funds in a bank is the so-called “precautionary recapitalisation”. It is enabled outside the resolution process for those banks deemed solvent by the supervisory authority, but which require capital to address hypothetical future losses as determined by the adverse scenario of a stress test.
  12. See, Karl-Philipp Wojcik, ‘Bail-in in the Banking Union’ (2016) 53 Common Market Law Review 91, 106–112.
  13. For an early proposal for EDIS, see Daniel Gros and Dirk Schoenmaker, ‘European Deposit Insurance and Resolution in the Banking Union’ (2014) 52 Journal of Common Market Studies 529, 529.
  14. In this sense, see M Draghi, ‘Risk-reducing and risk-sharing in our Monetary Union’, 11 May 2018, available at www.ecb.europa.eu/press/key/date/2018/html/ecb.sp180511.en.html.
  15. On the obstacles to fiscal integration in the Monetary Union, see Alicia Hinarejos Parga, ‘Fiscal Federalism in the European Union: Evolution and Future Choices for EMU’ (2013) 50 Common Market Law Review 1621, 1633–1641.
  16. For an analysis, see Gijsbert Ter Kuile and Willem Bovenschen, ‘Tailor-Made Accountability within the Single Supervisory Mechanism’ (2015) 52 Common Market Law Review 155; Rosa M Lastra, ‘Accountability and Governance Banking Union Proposals’ (Amsterdam : Duisenberg School of Finance 2012) DSF Policy Paper 30 8–9.
  17. See, Recital (56) and Article 1 SSM Regulation, and Recital (24) and Article 6.3 and 6.5 SRM Regulation. On the legal safeguards as a legitimacy mechanism, see also the findings of the German Constitutional Court in its Banking Union judgement, BVerfG, Urteil des Zweiten Senats vom 30 Juli 2019, 2 BvR 1685/14, Rn. (1–320), available at www.bverfg.de/e/rs20190730_2bvr168514.html.
  18. See, Article 19.1 SSM Regulation and Article 47 SRM Regulation. On the concept of supervisory independence, see Michael W Taylor, Marc G Quintyn and Silvia Ramirez, ‘The Fear of Freedom : Politicians and the Independence and Accountability of Financial Sector Supervisors’ IMF Working Papers WP/07/25 34 et seq.
  19. See, Recital (56) and Article 21(3), SSM Regulation, and Recital (43) and Article 46(3), SRM Regulation.
  20. On this concept, see Joseph HH Weiler, ‘In the Face of Crisis: Input Legitimacy, Output Legitimacy and the Political Messianism of European Integration’ (2012) 34 Journal of European Integration 825.
  21. On the weaknesses of the democratic legitimacy of the Banking Union and arguing that accountability cannot compensate for it, see Christoph Möllers, ‘Some Reflections on the State of European Democracy with Regard to the Banking Union and the ECB’ in Stefan Grundmann and Hans-W Micklitz (eds), The European Banking Union and Constitution : Beacon for Advanced Integration or Death-Knell for Democracy? (1st edn, Hart Publishing 2019) 213–218; Mark Bovens and Deirdre Curtin, ‘An Unholy Trinity of EU Presidents?: Political Accountability of EU Executive Power’ in Christian Joerges, Damian Chalmers and Markus Jachtenfuchs (eds), The End of the Eurocrats’ Dream: Adjusting to European Diversity (Cambridge University Press 2016).
  22. See, Bruno De Witte, ‘The European Union’s COVID-19 Recovery Plan: The Legal Engineering of an Economic Policy Shift’ (2021) 58 Common Market Law Review 635. For a critical reflection, see Paul Dermine, ‘The EU’s Response to the COVID-19 Crisis and the Trajectory of Fiscal Integration in Europe: Between Continuity and Rupture’ (2020) 47 Legal Issues of Economic Integration 337.
  23. On the legal dimension of PEPP, see Annelieke AM Mooij, ‘The Legality of the ECB Responses to COVID-19’ (2020) 45 European law review 713.
  24. For the justification of the ECB’s supervisory measures, see Andrea Enria, ‘An evolving supervisory response to the pandemic’, 1 October 2020, available at www.bankingsupervision.europa.eu/press/speeches/date/2020/html/ssm.sp201001_1~ef618a5a36.en.html.
  25. See the analysis of the potential redistributive effects of the NGEU by Clemens Fuest, ‘The NGEU Economic Recovery Fund’, CESifo Forum 22 (1) (2021) 3.
  26. On the role of the ESM in the response to the pandemic, see Menelaos Markakis, ‘The Reform of the European Stability Mechanism: Process, Substance, and the Pandemic’ (2020) 47 Legal Issues of Economic Integration 350, 376–382.
  27. On the features and motivation for a European safe asset, see the report by the European Systemic Risk Board, ‘Sovereign bond-backed securities: a feasibility study’, January 2018, available at www.esrb.europa.eu/pub/task_force_safe_assets/shared/pdf/esrb.report290118_sbbs_volume_I_mainfindings.en.pdf. For a comparative analysis of the possible models for a safe asset, see Sebastian Grund, ‘The Quest for a European Safe Asset—A Comparative Legal Analysis of Sovereign Bond-Backed Securities, E-Bonds, Purple Bonds, and Coronabonds’ (2020) 6 Journal of Financial Regulation 233.
  28. Excerpt from a quote from Jean Monnet of the Joint declaration adopted by the Action Committee for the United States of Europe, Bonn, 1st and 2nd June 1964, FJME, AMK 16/6/210. See, Gilles Grin, ‘Shaping Europe: The Path to European Integration According to Jean Monnet’ (Jean Monnet Foundation for Europe 2017) Debates and Documents Collection Issue 7 12.
  29. On the original supranational intentions in the drafting of the Treaty of Rome, see Julio Baquero Cruz, What’s Left of the Law of Integration?: Decay and Resistance in European Union Law (Oxford University Press 2018) 13–14.
  30. For an overview of the challenges to the Banking Union, see Andrea Enria, ‘How can we make the most of an incomplete banking union?’, 9 September 2021, available at www.bankingsupervision.europa.eu/press/speeches/date/2021/html/ssm.sp210909~18c3f8d609.en.html.
  31. On the arguments for a European safe asset to promote and safeguard financial integration, see Vítor Constâncio, ‘Completing the Odyssean journey of the European Monetary Union’, 17 May 2018, available at www.ecb.europa.eu/press/key/date/2018/html/ecb.sp180517.en.html; and the report by the European Systemic Risk Board, ‘Sovereign bond-backed securities’, 2017, available at www.esrb.europa.eu/pub/task_force_safe_assets/html/index.en.html.
  32. On this constitutional transformation process, see Edoardo Chiti and Pedro Gustavo Teixeira, ‘The Constitutional Implications of the European Responses to the Financial and Public Debt Crisis’ (2013) 50 Common Market Law Review 683.
  33. See in this sense, Jürgen Habermas, The Lure of Technocracy (Polity 2015) 9–16.
  34. See, ‘Towards a Genuine Economic and Monetary Union, Report by President of the European Council Herman Van Rompuy’, 26 June 2012, available at consilium.europa.eu/media/21570/131201.pdf; and ‘The Five President’s Report: Completing Europe’s Economic and Monetary Union’, 22 June 2015, available at ec.europa.eu/info/publications/five-presidents-report-completing-europes-economic-and-monetary-union_en.
  35. Quote from ‘Note de réflexion de Jean Monnet’, USA, avril/mai 1952, FJME, AMM 3/3/6. See, Grin (n 27) 27.
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