EUROPEAN MONETARY UNION

Banking Union role in the European Monetary Union

Banking Union role in the European Monetary Union

Introduction

The aim of this essay is to discuss the Banking Union role in the European Monetary Union. The banking union is one of the main achievements of the European Union last year. Two years ago, the EU adopted a series of regulations on the European Financial Stability Facility (EFSF) establishing the European Supervisory Authorities, including the European Banking Authority (EBA) which became operational on January1, 2011. The European Union has provided the most developed case as it postwar the world of economically and politically integration among the nation state. The EU has planned to take the major and key steps towards the further indentation by contracting the monetary union which will provide some of its member with the common currency and administrating by new central bank of European Union. Although, there has been the debate about the advantage for such enterprising especially about cost incurred in transition, there is the wide spread of agreement among the elites of European monetary Union which has the desirable objective (Rompuy, 2012).

European Union banking is an important element in building the better structures of European economic governance and a greater integration of the euro zone. Banking Union should allow European economic policy to break the negative feedback loop between sovereign debt states and balance their banks in which private debt and public austerity were mutually reinforcing for nearly three years. Its primary objective must be to restore the primacy of politics in financial markets by creating solutions that help reduce unbearably high interest rates that have rocked the country on the periphery of Europe. The EU urgently needs to restore a level playing field for all its members to protect the single market in financial services and ensure a greater stability in the Economic and Monetary Union (EMU).

Discussion and Analysis

The European Central Bank is slowly but surely moving towards its goal. Banking Association provides the establishment of a single supervisory authority in the euro area banking sector. At present there are 17 of the 27 EU countries. If the Banking Association will be established, the role of the ECB will increase significantly, it will control all of the banking systems of 17 countries in the euro zone. Also, the ECB will need to get new functions to sanction banks that do not comply with a decision of the Central Bank, to conduct raids on offices of banks, revoke banking licenses, to give instructions to the Bank to conduct stress tests, to report annually to Parliament and the ministers of finance of the Euro zone (Eichengreen, 2012).

The European Banking Authority (EBA) is one of the pillars of the monitoring framework established by the EU on January 1, 2011. Based in London, it aims to safeguard the stability and efficiency of the European banking system (and not just the euro area) preventing failures of financial institutions. It contributes to the creation of standards and issue guidelines and recommendations for a ...