How to Kill a Banking Union the German Way

The most effective way to block any measure in the European Union is to say it requires a treaty change. This is the sucker punch German Finance Minister Wolfgang Schaeuble delivered at an April 13 meeting with his EU counterparts in Dublin.

According to Schaeuble, the EU can’t make more progress towards setting up a banking union within the existing EU treaties. Germany says that a treaty change is needed to properly separate the banking supervision and monetary policy sides of the European Central Bank, once the ECB takes over supervisory duties for all 17 euro area countries.

The tenacity with which Germany is pursuing this seems odd, given that the U.K. just put bank supervision and monetary policy under the same roof, without feeling the need to build the kind of Chinese wall between the two functions that Germany is demanding. Schaeuble also says creating a pan-euro area bank resolution authority would require treaty change — yet the European Commission says that isn’t so, and the Commission is the official guardian of the EU’s treaties.

Germany’s insistence on a small treaty change is also odd, because it would open the door for the U.K. to pursue its agenda — which Germany says it is against — to start a wholesale renegotiation of the EU. Britain’s goal is to repatriate selected powers to national capitals, in particular London. Chancellor of the Exchequer George Osborne recently said the U.K. would use any renegotiation of the EU treaties to push this wider agenda.