FRANKFURT (MNI) – ECB President Mario Draghi voiced confidence
Monday that a Eurozone banking union was achievable but will have to
progress in phases that start with establishing common supervision.

“It can be achieved. It will be achieved,” Draghi said in testimony
before the European Parliament. Such a banking union would not be
“perfect” by the end of the year and would have to start with common
supervision before other elements would be put in place, he added.

“We’re going as fast as we can,” Draghi said, repeating comments
from last week’s press conference that it was more important the process
be done “right” than quickly.

Draghi said common supervision marked the “first step” toward a
banking union, with a resolution fund coming second and joint deposit
guarantees third.

“We cannot start with the deposit insurance guarantee,” Draghi
said. “We want this to be the end rather than the beginning of the
financial markets union.” He noted that a common deposit scheme would
imply eventual mutualization of debt in Europe.

Even further beyond banking union were Eurobonds, Draghi added. “I
think Eurobonds come at the end, at the end of this process.”

A resolution fund and regime by contrast were “absolutely
essential” for such a banking union, Draghi said, adding: “I don’t think
it’s wise to save the banking system at all costs,” but only when
financial stability is at stake.

Draghi said a financial transactions tax could be “a potential
source of income” for such a resolution fund, though he also voiced
concern that policymakers should be careful to avoid a transaction tax
that would induce financial firms to move their business to other
countries.

While a banking union would be focused on the euro area, Draghi
also noted that policymakers “have to do this while maintaining the
single market” of the European Union.

Draghi played down fears that the pace of banking union was
critical in order to allow the ESM to begin investing directly in banks.
He argued markets would see any initial aid program under national
governments as a “temporary blip” until the ESM could take over.

Draghi repeated that he saw the ECB’s role in supervision at the
center of an existing network of national supervisors, noting that 14 of
17 euro area central banks already had supervisory roles. These would
offer “synergies” for any Eurozone-wide banking union being created.

Draghi also repeated concerns about keeping the ECB’s key mandate
protected: “We have to be able to find an arrangement whereby we
maintain our monetary independence from the supervision” role, he said.

“All this means greater powers for the ECB,” Draghi also
acknowledged, but he denied that the ECB was actively seeking such power
and rejected a parliamentary member’s accusation that the ECB was not
transparent.

He also said the greater powers that come from the ECB’s new
supervisory role would have to be accompanied by greater democratic
accountability.

— Frankfurt bureau: +49 69 720 142; email: ccermak@marketnews.com

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