The Germans and their northern allies will delay a banking union as long as possible. There are two reasons for their position. A necessary feature of a banking union is deposit insurance, and none of these countries wish to be on the hook for the deposits of the shady, periphery banks.
Additionally, Germany and the northern tier do not want their banks under a supervisor that they do not control like their own national regulators. These countries have the most leveraged banks in the world led by Germany’s Deutsche Bank.
Hollande is not happy about this turn of events. In the June summit, the eurozone agreed to have a banking union operational by January 1, 2013 and to allow bank recapitalizations to be financed directly from the ESM. This second part is important, because the bailout money would not have been added directly to the country’s total debt.
Germany and the northern tier are now backing away from the summit agreements, and Hollande is right to be angry about this:
This whole episode merely fits into the pattern of Germany’s behavior. They talk as much as possible to maintain the status quo, but they do not provide the necessary funds to pay for these grand schemes.