Mutualized Bank Guarantees

Although denying that was his intention, European Commission President Jean-Claude Juncker Plans Deposit Guarantee Fund by 2024.

Brussels is drawing up plans to gradually siphon cash away from national bank deposit guarantee schemes over the next decade to fund a new eurozone-wide insurance system, a move likely to trigger a bitter clash with Germany.

According to draft proposals from the European Commission seen by the Financial Times, the new “European Deposit Insurance Scheme” would initially serve as a back-up for national guarantee funds. But it would evolve via intermediate steps into a fully mutualised system by 2024, the documents show.

Many eurozone governments and the European Central Bank argue that a euro-area wide scheme would convince depositors their euros are safe and could never be repaid in national currencies, a fear that helped spark a bank run in Greece. But Germany has fiercely resisted any move to share risk that could leave its depositors or taxpayers on the hook for other countries’ banking system.

In September the German finance ministry fired a warning shot at Brussels, circulating a paper to national capitals saying the commission’s plans to introduce legislation was “unacceptable”.

In an effort to placate Berlin, Jean-Claude Juncker, the commission president, last week said in a speech in Germany he was “not planning a European-wide mutualisation of deposit insurance systems” or a “mutualisation of risk”. But the draft plan appears to contradict his assurance.

Germany is the only eurozone country that currently has a fully-funded national deposit guarantee scheme, although all are required to create one. Germany’s politically powerful regional banks have fiercely lobbied against a non-German system.

But following deliberations among the 28 EU commissioners on Wednesday, Valdis Dombrovskis, vice-president in charge of eurozone issues, said there was now “commitment to propose first steps” towards the scheme in Brussels. The Commission is expected to publish the draft law November 24 that would then require approval from nations and the EU parliament to take effect.

Juncker Caught Again

Clearly Jean-Claude Juncker is caught in another lie. It is hardly shocking that any public bureaucrat would tell lies. But with Juncker, one should always suspect lies.

After all, Juncker is famous for saying “When it becomes serious, you have to lie“.

Another Huge Warning

Juncker’s latest lie is another huge warning to Wolfgang Schäuble, Germany’s finance minister, and to all of Germany as well.

Mutualized deposits, mutualized debts, and mutualized benefits are all in the works. And as we have seen, the German constitutional court is prepared to look the other way as the march to German guarantees of Greek, Portuguese, and peripheral debt takes place.

And Schäuble cannot count on Merkel either. I strongly suggest she approves of this approach, whether she says so or not. At every critical turn, Merkel has bent to keeping the eurozone intact, no matter what it takes.

Mike “Mish” Shedlock