IMF highlights issues with EU banking union

The European Union needs a strong system in the eurozone to handle big banks that get into trouble, the International Monetary Fund has said, highlighting what many experts see as the weak point of the EU’s banking union.

The European Central Bank will begin supervision of big banks across the 18 countries using the euro later this year, the first step in banking union.

 

The next step will be a common approach to preventing banks in trouble from dragging down the governments of eurozone countries, as happened with Ireland. That step remains a work in progress. So far, only a small emergency fund exists.

While welcoming “substantial progress” on banking union, the International Monetary Fund, which helped bankroll the bailouts of several eurozone countries, including Ireland, highlighted its shortcomings.

“Work needs to continue to establish a common backstop to sever effectively sovereign-bank links,” IMF officials wrote in their regular review of the eurozone economy. “The current planned backstop may prove insufficient to break decisively bank-sovereign links.” source: (Reuters)