European Banking Union and the EU single financial market: more differentiated integration, or disintegration?

Abstract

European Banking Union (EBU) provides an important new context in which to examine how differentiation affects integration. This chapter considers: (1) the short to medium term appeal of EBU participation for Member States that do not use the euro (centripetal effects); and (ii) the potential over the same time horizon for EBU to lead to disorderly break-up of the EU (centrifugal effects). On (1), EBU pushes the boundaries of legal technology with a view to maximising the functional equivalence between euro Member States, whose participation is compulsory, and the non-euro Member States that choose to participate in EBU via a close cooperation agreement. The early indications that some non-euro Member States do want to join EBU notwithstanding certain lingering differences between their position and that of euro area Member States provide an encouraging sign as to the value of those efforts. But whilst fair participation terms are necessary, they are not a sufficient precondition to the exercise of the option to participate in EBU. Each non-euro Member State will make its own wide-ranging political calculations on whether there are net welfare gains from EBU and in doing so will take due account of the policy preferences of private and public stakeholders, which may pull in different directions. The full extent of the centripetal effect of EBU is therefore hard to predict but it is certainly a new force to be reckoned with. On (2), the chapter reaches a cautiously optimistic prognosis. The legal safeguards in EBU to address disintegration risks are not a permanent solution to the problem of certain Member States being intent upon remaining outside deeper integration in the monetary and economic sphere but nor are they merely fleeting or stopgap measures. The chapter identifies compelling economic incentives for all Member States to make these safeguards work and to resist destructive behaviour.