Bank crisis strains EU unity

By Dominic Hughes
BBC News, Brussels

Has the international financial crisis exposed the cracks in the European Union's single market? And are concerns over the economic national interest now over-riding the broader goal of European integration?

These are the questions being asked by those committed to an "ever closer union" referred to in the words of the EU's founding Treaty of Rome. They are worried about the way countries are acting to prop up their own banks and financial institutions.

Ireland was the first to break ranks by guaranteeing savers' money. Greece, Sweden, Austria and Denmark have all followed suit. And of course the pledge by Germany's Chancellor Angela Merkel to guarantee private deposit accounts has sown confusion and chaos in the markets.

But just the day before Chancellor Merkel was standing in Paris with other EU leaders declaring that Europe needed to act together.

"We agreed that member states should take decisions at the national level," she said. "But at the same time member states should not take decisions without regard to the effect they have on other member states."

Twenty-four hours later the Germans seemed to have done just that.

National interest

The problem with trying to coordinate a common approach is that the EU just does not have the right to legislate or act in many areas - they fall outside the EU's competence, to use a bit of euro-jargon.

For example, regulation of the banking sector is handled at a national level and different countries have different problems to deal with. In Germany they do not face the kind of property crash being seen in Spain, Ireland and the UK.

But Pervenche Beres, the chairwoman of the Economic and Monetary Affairs Committee at the European Parliament, is dismayed to see countries putting their own national interest above a coordinated European defence of the banking system:

"I think this is exactly what we shouldn't be doing. It might be helpful for a moment at the national state level but if you add it all, it will just destroy the European market. And if we destroy the little thing we have, I think it will be a disaster."

Pervenche Beres is particularly critical of the role of the Commissioner for the Internal Market, Charlie McCreevy, who happens to be an Irishman. She argues Mr McCreevy should have talked his government out of its guarantee or else proposed it at an EU level. The irony of a French Socialist MEP defending the EU's single market is not lost on Mrs Beres.

Cumbersome structure

At the European Commission's midday briefing for the Brussels press corps, Johannes Laitenberger, spokesman for Commission President Jose Manuel Barroso, was pressed on the implications for the single market.

"It can take years to pass a single piece of legislation - hardly a recipe for the kind of decisive action that is needed in a situation that seems to change by the hour"

In what became a rather tetchy exchange with journalists, Mr Laitenberger insisted the market was functioning as it should. Many of the journalists clearly believed otherwise.

But in the face of this kind of financial crisis the EU lacks the mechanisms for the kind of swift response that national governments can provide. The architecture of the EU is too cumbersome.

Typically the Commission may propose a measure. Ministers and - increasingly - the parliament consider it, perhaps over a number of weeks. Then there is a vote, and then agreement at heads of government level.

It can take years to pass a single piece of legislation - hardly a recipe for the kind of decisive action that is needed in a situation that seems to change by the hour.

Besides which the managing of economic policy is one area that nation states jealously guard. This would move the EU on to very tricky ground.

That is not to say a common approach will not emerge. For example, as more EU countries announce guarantees for savers, pressure builds on those countries that are holding back.

In a market where cash is rushing to safe havens, it may be the fear of a run on their banks that forces reluctant countries to sign up, rather than any great desire for European integration.