A Banking Union of Ideas? The Impact of Ordoliberalism and the Vicious Circle on the EU Banking Union

Abstract

Abstract:The establishment of the EU banking union reveals two major shortcomings of liberal intergovernmentalism. First, it fails to explain the preference formation of the most important actor -the German government. The banking sector was divided between public and private banks, and there is no clear-cut pattern about whose interests the German government promoted. Second, material bargaining power cannot account for German concessions despite favourable power asymmetries. This article seeks to demonstrate how an ideational frame can convincingly fill these gaps. Ordoliberal ideas were constitutive for German preferences. The manipulative use of ideas as strategic resources by the German government's opponents explains why it made significant concessions. Germany's government publicly acknowledged that breaking the 'vicious circle' between banks and sovereigns was the main objective of the banking union.This became a rhetorical trap used by a coalition of Southern European member states to force the German government to make concessions. Acknowledgments:

Business Cycle Synchronization in the EMU: Core vs. Periphery

“…With regards to the latter, the literature nearly unanimously includes Portugal, Spain, Ireland and Greece, with Italy being sometimes excluded (Lehwald, 2013). For the former, we follow a geographical definition and include France in the group of core countries, as opposed to studies clustering along country-specific economic policies (Schäfer, 2016). 3 The distinction between a core and a peripheral set of countries was also found for the other criteria suggested by the OCA theory, see Artis (2003).…”

The role of the EU institutions in establishing the banking union. Collaborative leadership in the EMU reform process

“…In the banking union process, there are continuing doubts as to whether the 'high-hanging fruit' (the common DGS or EDIS in particular) will eventually be picked. Some feel that the current arrangements fall short in breaking the vicious circle between banks and sovereigns -which was the motivation for launching the project in the first place (Schäfer [2016]). As stated above, the conditions for acquiring access to direct recapitalization are highly stringent, the SRF will be tiny in its first few years and the agreement on bridge financing essentially comes down to member states guaranteeing to back up their own national compartments.…”

“…For the step, the division of labour between the legislators (the Ecofin Council and the EP) and the Eurogroup was crucial. This is because the Schäfer [2016]). Yet it would be difficult to argue that this is where a banking union as such was put on the agenda.…”

The Rise and Fall of Merkozy: Franco‐German Bilateralism as a Negotiation Strategy in Eurozone Crisis Management

“…Meanwhile it had become clear that the Fiscal Compact and the ESM would not suffice to calm the markets and stop the crisis. While Germany preferred a reaction that was limited to the establishment of a common banking supervision, excluding any element of risk mutualization, a large coalition of Member States perceived the need for more comprehensive measures (Schäfer, , pp. 966–969).…”

“…These measures included direct bank recapitalization by the ESM, a deposit guarantee scheme, banking resolution, a common resolution fund, and – most controversially – the mutualization of debt. Whereas the latter was advocated by a relatively small group including France and the ‘debtor states’ (Severin and Bremer, ; Spiegel et al ., ), other issues were supported by larger groups, which, according to the particular issue, included Belgium, Cyprus, Greece, Ireland, Luxembourg, Portugal, or even all Member States except for Germany (Schäfer, , pp. 966–969).…”