Written by Giulia Gallinella


The creation of a Banking Union was foreseen as one of the many weapons to fight the Euro crisis. In many cases, it was also perceived as the first stepping-stone towards the formation of a political union. However, its accomplishment was framed within the scope of intergovernmental decision-making, which somewhat halted the completion of a homogeneous Banking – and eventually political – Union. Accordingly, only two of the three pillars essential for the Banking Union have come to life. This analysis aims to explore the reasons that hindered the fulfillment of the Banking Union. To fulfill such an objective, the context in which the Banking Union came to place will be analysed by putting particular emphasis on the Euro crisis and the actors at stake. Secondly, the Single Supervisory Mechanism (‘SSM’), Single Resolution Mechanism (‘SRM’), European Insurance Deposit Scheme (‘EDIS’), and the common fiscal backstop will be evaluated. Lastly, the pivotal role that intergovernmental decision-making played in this instance will be assessed, and a reflection on possible prospects will be provided.

A Banking Union in the making

The proposal for the establishment of a Banking Union emerged shortly after the financial debt crisis of 2008, and it was envisioned as a tool to counteract the economic collapse across the Eurozone Member States. The concept of the Banking Union, however, was first sketched out in the Van Rompuy Report, also known as the Four Presidents Report of 2012. Such a project was subsequently supported by the European Council and the Euro Area Summit later in June 2012 (Quaglia, 2019). The core objective of the establishment of a Banking Union was to halt the ‘vicious circle’ between struggling banks and their sovereigns (Pisani-Ferry, 2012). It is important to note that, in 2014, the European Central Bank (‘ECB’) became the banking supervisor of the Euro area following a request that was brought up during the Euro Area Summit in 2012. Such a request stemmed from the impossibility to fulfill the need to directly recapitalise the Eurozone banks and relied on Art. 127(6) TFEU, which entrusts the ECB with banking supervision powers in situations of fast-track procedures (Teixeira, 2017). Additionally, the project for the development of a Banking Union was further expanded in 2015, in the so-called Five Presidents Report, which introduced the idea of an EDIS to share the risks deriving from the minimum coverage of bank deposits (ibid.). 

Against this background, it is fundamental to point out that the various Eurozone Member States had notably different views regarding the very setting-up of the Banking Union. More specifically, one group of Member States, composed by France, Italy, Spain, and several other countries from the Euro area periphery, endorsed the establishment of a Banking Union and the creation of financial support mechanisms for struggling banks and their sovereigns. At the same time, they were in favour of the supra-nationalisation of banking supervision and bank resolution (Quaglia, 2019). This is because they were most affected by the financial crisis and, in particular, they held weak fiscal positions. As a result, their numerous ailing banks posed a great risk of contagion to the rest of the national banking system (ibid., 2017). In other words, the first group interpreted the establishment of the Banking Union as the only way to break the ‘doom-loop’ between the banks and their sovereigns (Véron, 2012). The second group of Member States was characterised by the exact opposite features; composed by Austrian, Finnish, Dutch and especially German policymakers, it was generally wary of the establishment of a Banking Union and particularly of tools for financial support. In other words, they supported the supra-nationalisation of banking supervision for systemic banks but rejected common mechanisms for bank resolution, deposit insurance and common fiscal backstop (Quaglia, 2019). This is because, holding a healthy fiscal position and having to some extent bailed out their ailing banks immediately after the Euro crisis, the states in the second group would have likely become the major contributors to the financial support schemes (ibid.). 

The three pillars of the Banking Union

Albeit differently, the SSM and the SRM were finalised by 2014 (ibid.). EDIS and the common fiscal backstop, however, were never achieved, hence rendering the Banking Union an asymmetric project.


The first stepping-stone towards the creation of the Banking Union was the establishment of the SSM, which was implemented in November 2014 (Véron, 2015). The SSM is the system of banking supervision in the Eurozone, and it involves the ECB and the national supervisory authorities in the Member States (European Central Bank, 2018). The ECB is ultimately responsible for its functioning, but the very act of banking supervision is distributed among national and supranational authorities. More specifically, supervisory powers are bestowed upon the ECB if the assets of a given bank are higher than €30 billion or if they represent 20% of the state’s GDP (Teixeira, 2017). In all the other cases, national authorities will carry out banking supervision, but following increasingly harmonised rules (ibid.). This is because Art. 127(6) of the TFEU only sets the legal basis for supervisory powers to be granted to the ECB and not to another, even if newly-established, institution. It was soon clear that such centralisation of competences would have not been proportionate and that a de-centralisation in the banking supervision conduct was hence needed (ibid.). Despite this, the SSM can be considered as ‘ECB-centric’ (Quaglia, 2017: 3) because, as it was mentioned above, even the banks whose supervision does not fall under the competences of the ECB are governed by a series of increasingly harmonised rules. 


The rationale of the SRM derives from the global banking resolution regime implemented after the financial crisis of 2008, namely the Financial Stability Board, which was based on the idea of reducing the chances that public funds had to be exploited to rescue ailing banks (Teixeira, 2017: 553). The implementation of the SRM, nonetheless, faced numerous challenges. One of these was, for instance, its legal source. More specifically, it was unclear whether Art. 114 TFEU could be intended as the SRM’s legal basis because of its nature of harmonisation clause (ibid.). As such, the SRM had to be justified as a harmonisation tool of the single market (ibid.). Another challenge was the creation of the decision-making structure: while, on one side, the first group of states wanted to confer the European Commission the powers of deciding whether a bank should undergo a resolution process, Germany and other Member States pushed for the construction of an independent body, namely a Single Resolution Board (SRB), with intergovernmental characteristics (Quaglia, 2017). Eventually, a compromise was found – the SRB was indeed formed but as a fully independent body, and it is responsible for the resolution the banks supervised by the EC, while national authorities are responsible for all the remaining ones (ibid.).   

EDIS and the common fiscal backstop

The idea of building a deposit insurance scheme was already envisioned in the Four Presidents Report as an agreement on the harmonisation of national resolution and deposit guarantee schemes. While the first coalition did endorse such measures, the second coalition, and especially Germany, were strongly against it. German policy-makers, in particular, feared that the creation of a deposit insurance framework would impinge upon their well-established national protection schemes and that German banks would eventually become the major contributors to EDIS (ibid.). In other words, the preoccupation that Germany would find itself bailing out depositors in other Eurozone Member States was the pivotal argument in supporting German opposition to EDIS. In 2015, a mandatory reinsurance scheme was implemented, under the proposal of the Commission, as a somewhat softer measure. EDIS as such, however, did not materialise (ibid.). The common fiscal backstop was framed within the scope of the European Stability Mechanism (ESM) in the case that temporary financial support was required (Howarth and Quaglia, 2013). Since unanimity is required for decision-making within the ESM (Schimmelfennig, 2015), Germany was able to exercise its de facto veto power to halt the creation of the backstop. The reasons behind such opposition were the same behind the obstruction to the creation of EDIS, with the addition of the belief that the ESM could not be exploited to cover problems related to the legacy of a state’s financial misconduct (Quaglia, 2017). Consequently, the common fiscal backstop was, finally, not implemented.

Intergovernmentalism and the Banking Union

After the Maastricht Treaty, two decision-making logics were formalised within the EU, namely a supranational and an intergovernmental one. While the former was generally aimed at the scope of the internal market, the latter was used in the economic and monetary policies framework (Fabbrini, 2013). The Euro crisis, in particular, became a chance to test the EU intergovernmental institutions’ capability of preventing and managing an emergency. Although the crisis somewhat enhanced the role of supranational institutions (Dehousse, 2016), intergovernmental decision-making became the protagonist of the post-crisis management (Fabbrini, 2013). The setting-up of the Banking Union was not exempted from this. Moreover, It can be observed, that intergovernmental decision-making itself halted the process and caused the Banking Union to be incomplete or, in Quaglia’s words, asymmetrical(2017; 2019). 

First and most strikingly, the unfulfillment of the common fiscal backstop is a clear example of the detrimental role that intergovernmental decision-making had on the formation of the Banking Union. Within the unanimity-based framework of the ESM, Germany had the opportunity to play its veto power for the pursuit of its own interests. Furthermore, as it was mentioned above, EDIS also failed to be established for very similar reasons. At the same time, however, the SSM and SRM were too affected by the intergovernmental logic; The SRM, for instance, was eventually achieved thanks to the compromise that was found on the SRB. Germany, indeed, was opposed to a supranational resolution scheme that would allow EU-wide ailing banks to benefit from European funds (Schimmelfennig, 2015). The establishment of the SSM, was only possible because German policy-makers strongly endorsed supranational banking supervision, albeit they attempted to exclude German banks from such measure (ibid.). It can thus be argued that intergovernmental decision-making allowed Germany and the second group of states to hold positive power over the creation of the Banking Union, and, in this case, to impinge upon it.

On the other hand of the spectrum, the first group of states supported the implementation of a supranational solutions to the crisis, in order to avoid the threat of veto imposed by the second coalition (ibid.). Clearly, their priorities were to contain their obligations towards fiscal discipline and to create resolution and support mechanisms, rather than supervision (ibid.; Howarth and Quaglia, 2013). French President Hollande, in particular, called at the time for a ‘social Union’,  with increased control over national macroeconomic and fiscal policies, before a political one (ibid.). Nevertheless, the intergovernmental logic governing the Euro crisis-related measures rendered such a project impossible; France and the first group, thereafter, found themselves holding a negative power role in the construction of the Banking Union. Eventually, the inability to endow the crisis resolution policies, and especially the creation of the Banking Union, with a supranational logic deeply undermined their accomplishment.


The dispute over the Banking Union mirrors the undeniable conflict between the first coalition, advocating for a solid European financial commitment and more relaxed financial regulations, and the second group, arguing for limited financial commitments and strict financial supervision (Schimmelfennig, 2015). Against this background, however, it would be compelling to observe whether the slow recovery from the crisis will stimulate a more positive and optimistic environment that will allow for a re-evaluation of the Banking Union project. Nonetheless, perhaps more time and an increasingly financially stable EU will be needed in order to seek further integration within this scope. Finally, it will be certainly interesting to monitor the approach chosen by the newly appointed ECB President Lagarde, who has strongly endorsed the completion of a Banking Union (Laidlaw, 2019), in order to successfully fulfill this task.


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