Scandinavia & the EU

On Wednesday this week, finance ministers reached an agreement on the basic mechanism for a single supervisory authority over eurozone banks – the key first step to a banking union.

The supervisory mechanism will be carried out by the European Central Bank (ECB) which will be the direct authority of at least the biggest banks in the eurozone countries.

But non-eurozone countries can join if they wish to.

In Denmark and Sweden the banking union and whether or not to join has been thoroughly debated.

Swedish Prime Minister Fredrik Reinfeldt and Finance Minister Anders Borg had before this week been framed as the most critical politicians of the banking union next to, of course, Britain’s prime minister David Cameron. Denmark has on the other hand once again come off as sitting on the fence.

However, the statements from Reinfeldt and Thorning-Schmidt on the doorstep to the Council summit were surprisingly identical. They both acknowledged that Wednesday’s agreement was thorough and solid work by the ECB, Parliament, Commission and Council. Thorning-Schmidt said she’s only concerned about the financing; troubled banks “should save themselves”. This can only be interpreted as states should no longer have to bailout banks through bank packages financed by taxpayers’ money.

Reinfeldt has stated that Sweden’s main objective is that Swedish taxpayers’ money “shouldn’t finance other countries’ banks’ risky business.”

So far Denmark and Sweden have not helped bailing out Southern European countries. They have only lent money to the fellow Nordic country Iceland, when Iceland in 2009 experienced a… banking crisis.

That taxpayers shouldn’t rescue banks on the verge of bankruptcy is not only a Scandinavian view, and the EU will come up with a solution to the problem.

Denmark will join as the country has had a severe banking crisis and four bank packages since 2009. Denmark’s 10th largest bank, Roskilde Bank, also went bankrupt in July 2008 as an early warning of the coming global financial crisis.

Sweden has not experienced the same problems with its banks, and Reinfeldt has concluded this is due to the sufficient national supervisory.

However, the main reason for creating a banking union has been to restore investors’ and customers’ trust in European banks.

If rating agencies such as S&P and Moody’s then decide to give banks under ECB control particularly positive ratings, Sweden would be keen on joining the European banking union.

You can bank on it.

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