Taxpayers to Pay Trillions for Banking Union

EU Seeks Plan to Handle Failing Banks Amid Cost Concerns – Bloomberg.

The EU is playing a trick on the European taxpayers. Its leaders are pretending that the costs to finance the resolution, also known as a bailout, of an insolvent bank will not be borne by the taxpayer.

Merkel herself said,

[Resolution]may not be at the cost of the taxpayers, but has to be structured so that those responsible for the failures of the banks carry the burden.

Those responsible for the failures of a bank are the executives and shareholders. Bank failures are so costly that these groups of people cannot afford to pay. If they could, the bank couldn’t fail in the first place.

When American banks needed help in the wake of the Latin Debt Crisis in the early 80’s, they lost more money from bad loans to South American countries than they had made in profits spanning to the early 19th century. The latest fiasco in 2008 saw the same result with the TBTF banks losing more money than they had made in profits in their entire histories.

Look how expensive banking crises turn out to be:

From “Systemic Banking Crises” by Luc Laeven and Fabian Valencia

Note the 2nd column. That’s increase in debt, and guess who’s responsible for that? It’s not Merkel, the eurocrats or the banksters but the taxpayer. Crises are always very expensive, and they always involve the taxpayer.

The European Financial system has bifurcated into one for the rich countries and one for the periphery. The only way to unify them is to make the financial system risk the same for all countries, hence the discussions for a banking union.

In order to achieve this union, a plan to have the banksters pay for their own resolutions will never work, because they simply cannot afford it. Therefore, each country, and by implication its taxpayers, must become joint and severally liable for the whole. If countries are still responsible for depository insurance and resolution authority for the banks within their borders, the risk will be different for countries like Spain and Germany. Deposits will flee to the perceived safer jurisdiction.

This means whether the German taxpayers like it or not, Merkel is slowly moving Germany into a position to use its balance sheet to guarantee periphery banks.