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News : EU Economy Last Updated: Oct 3, 2013 - 10:01 AM

Schäuble: EU banking union will "emphatically" not take on past burdens
By Finfacts Team
Oct 2, 2013 - 8:02 AM

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Angela Merkel, German chancellor, and Wolfgang Schäuble, German finance minister, at the Chancellery, Berlin in May 2011. Dr Schäuble has been paralysed since 1990 when he survived an assassination attempt by a mentally ill woman. He was 47 at the time.  

Wolfgang Schäuble, German finance minister, says a European banking union is on course to become a pillar of the EU but he has said "it emphatically is not and cannot be a mechanism to redistribute the burden of yesterday’s crisis among its participants." He added that whatever legacy issues come to light now will have to be tackled nationally and the backstop of the European Stability Mechanism (ESM), the rescue fund, would only come into play in  "extreme circumstances."

"Europe needed a banking union comprised of two core elements: a supranational supervisor for the region’s largest banks, and unified rules and efficient mechanisms governing the resolution of troubled financial institutions," Dr Schäuble wrote in an article published in 'The Banker" magazine on Tuesday "A mandatory bail-in regime would ensure that those who fund the banks would have to share the costs of their mistakes in the future - - and would know this before they invested. Chances and risks had to be reunited, wrong incentives to be stopped."

He added: "while the banking union will include a limited joint fiscal backstop for member states in the shape of loans or capital from the European Stability Mechanism, these will be last-resort instruments to be used in extreme circumstances after other sources of capital (shareholders, creditors, industry-financed backstops, national fiscal backstops and so on) have been exhausted – and that only subject to appropriate policy conditionality. The banking union will not be a vehicle to merely mutualise existing liabilities or spread the cost of past rescues across more shoulders."

Following the recent general election, the comments from Germany must be a final nail in the coffin of Irish hopes that Europe would assume responsibility for the €64bn of bank-related sovereign debt.

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