The European Central Bank (ECB) has been pushing for a central pan-European banking authority that will operate under the auspices of the ECB. They are right to do so because there are many banks that need to be wound down and others that need to have trust restored (think Spain). Any economic system needs a sound, trusted banking system if the economy is to prosper, and the EU-17 is severely lacking in this regard.
Germany and France are backing away from earlier quasi-commitments to back the central authority; instead, they are proposing that national governments clean up their own banks. The reason is easy to understand; they don’t want to pay for the cleanup of distressed southern European banks.
However, the larger point is that if the monetary union is to survive, there must be a confidence in a European banking system. This will only be accomplished in anything close to a reasonable amount of time by the implementation of pan-European banking regulations. In this case, Germany and France appear to be penny-wise and Euro-foolish.
