An Overview Of The Strives To Complete The Half-Built House

An Overview Of The Strives To Complete The Half-Built House In Other Words, The Current Issues Of The EMU Presented by: Dr. Marinkás Date: 15 February 2024 The Structure of the Presentation - The brief history of the creation of EMU, its initial weaknesses, with special regard to the lack of supervision - The creation of the Banking Union and its elements established as a consequence of the financial crisis of 2010 and to the allocation of competences between the EU and its Member States - The crisis management strategies of the ECB and their conformity with the principle of conferral - Summary and Concluding Remarks The Brief History Of The Creation Of EMU, Its Initial Weaknesses, With Special Regard To The Lack Of Supervision - The Eurozone is far from being an Optimum Currency Area (OCA) as first portrayed by Mundell (1960) and Balassa (1961) - The Eurozone not only lacked the conditions to become an OCA, but the [political] will to become one (Münchau, 2013) - The 'original sin': as a result of political dissent, the 'founding fathers' of the EMU gave up the creation of a real economic and monetary union and created an asymmetric monetary union instead and dispensed with creating a proper system of supervision. - The founding fathers secured the independence of the European Central Bank (ECB) to an extent that one could have regarded the ECB as being a sui generis entity outside the EU institutional framework - Answer to the issue: • C-11/00 - Commission v. ECB • Lisbon Treaty - The result of the chosen path: • The EMU was a 'half-built house' (Bergsten, 2012) • Divergence instead the expected convergence • The presence of 'Moral hazard'; 'free-rider' problem and the 'beggar-thyneighbor' policies and the way to avoid them:  Stability and Growth Pact  'No bailout' clause (Art. 125 TFEU) and the prohibition of monetary financing (Art. 123 TFEU)  The ECB was not mandated to act as a lender of last resort (LLR) - It became one, however (Quinn, 2023) The Creation Of The Banking Union And Its Elements - The Allocation Of Competences Between The EU And Its Member States - The failure of the previous banking supervision and resolution framework: domestic authorities turned a blind eye, when it came to their 'national champions' (Chiarella, 2016) - 'Supranationalism had gained momentum' (Epstein and Rhodes, 2016) - What happened in the next years was extraordinary and unthinkable even a few times earlier. (Van Rompuy 2014) - The German reluctance towards the Banking Union (moral hazard etc.) - The Single Rule Book (2013-) - • Capital Requirements Regulation (CRR); • Capital Requirements Directive (CRD); • Bank Recovery and Resolution Directive (BRRD); • Deposit Guarantee Schemes Directive (DGSD). The harmonization combines different layers of legislation, which allows flexibility. However, flexibility could lead to divergence between the member states' regulations. - Single Supervisory Mechanism (2014) and the National Competent Authorities - The less significant credit institutions fall under the supervision of the national authorities, the significant ones are under the direct supervision of the ECB (Article 6 (4) SSM Regulation). - While the early years showed a somewhat mixed picture (e.g. ECA, 2016), recently 'The SSM has developed into a mature organization that is functioning well [...] it was generally praised, including by industry stakeholders, for its swift and agile approach to addressing the challenges posed by the COVID-19 crisis' (COM (2023) 212). - Single Resolution Mechanism (2016) • Covers the same scope as the SSM and the SRM Regulation's purpose is to provide a framework for the resolution of failing banks within the Banking Union with minimal costs for taxpayers and to the real economy. • Unlike in case of the SSM, the recent evaluations show that there are shortcomings and legal uncertainties in the functioning of the SRM (Culpepper and Tesche, 2020; Smoleńska, 2022). • T-510/17  Delegation of powers to the SRB and its conformity with the principle set out in the C-9/56, Meroni v. High Authority (3 June 1958) judgement and C-270/12, United Kingdom v. Parliament and Council (22 January 2014) cases  The SRB does not have autonomous power to decide on the resolution of an entity • Two selected judgments:  T-510/17 Antonio Del Valle Ruíz v. EC and SRB (1 June 2022)  T-481/17 Fundación Tatiana Pérez [...] v. SRB (1 June 2022)  T-481/17 o The legal nature of the SRB's decision o The resolution scheme adopted by the SRB may be challenged [individually] without requiring the launching of a procedure against the Commission's decision endorsing it - European Deposit Insurance Scheme (EDIS) The Crisis Management Strategies Of The ECB And Their Conformity With The Principle Of Conferral - The CJEU's 'amicable attitude' (Angyal, 2015); 'answer to any question related to ECB activity at least on monetary questions seems to be known in advance.' (Dawson and Bobic, 2019) • ESMA (C-270/12, United Kingdom v. Parliament and Council, 22 January 2014) • OMT (C-62/14, Gauweiler and Others, 16 June 2015) • ESM (C-370/12, Thomas Pringle vs. Government of Ireland and Others, 27 November 2012) • - PEPP - The CJEU's scrutiny was not initiated The national constitutional courts on the crisis management packages the initial 'amicable attitude': • Austrian Constitutional Court (Verfassungsgerichtshof, VfGH)  ESM Treaty (SV 2/12-18, Judgement of 16 March 2013);  Fiscal Compact (SV1/2013-15, Judgement, 3 October 2013). • French Constitutional Court (Conseil constitutionnel) on the Fiscal Compact (2012-653 DC, Judgement, 9 August 2012). • German Constitutional Court (Bundesverfassungsgericht, BVerfG) on the ESM Treaty (2) BvR 1390/12, Judgement, 12 September 2012). - The first 'warning' from BVerfG: • '[...] in the current state of the Banking Union there is still a sufficient level of legitimacy feedback.' (BVerfG Urteil vom 30. Juli 2019, 2 BvR 1685/14, 2 BvR 2631/14) • The BVerfG crossed the 'red line' with the so called 'PSPP-judgement' when stated: the ECB exceeded its powers, that is to say acted ultra vires, and in violation of Germany's constitutional identity, since the PSPP (and the CJEU's Weiss-judgment) allows the ESCB to pursue an economic policy agenda by means of bonds purchases. This has no basis in primary law (BVerfG, Urteil des Zweiten Senats vom 05. Mai 2020 - 2 BvR 859/15-, Rn. 1-237)  Saving 'Private BVerfG' (from itself) - The COVID-19 related programs - 'Extraordinary times require extraordinary action. There are no limits to our commitment to the euro.' (Lagarde, 2020) - These extraordinary tools were: - • Pandemic Emergency Purchase Program (750 => 1850 billion EUR) • Collateral easing (TLTRO III) Russian-Ukrainian war • We are in a state of permacrisis [...] The ECB's mandate, is price stability [...] It is the ECB's compass' (Lagarde, 2023) • Tools of fighting the inflation:  In July 2022 - the first time ever in the previous 6 years the ECB increased its fixed interest rate to 0.5 percent as of September 2023 it is 4.50  The ECB's other tool of fighting the inflation is the phasing out of the net purchase programs Conclusions - Past: • The 'Half-Built House'  Asymmetric nature and the lack of proper supervisory system - Present: • An 'Almost Completed House'  Still asymmetric, but  It features a proper supervision system (except for the EDIS);  Withstood the legal debates;  Was able to tackle the challenges of the COVID-19 disease.