The development of the EU banking union dates back to 2012. At that time, the eurozone was burdened with a severe debt crisis that raised doubts about the future of the euro as a common currency. The root causes of the euro debt crisis were never addressed, only the symptoms were masked by numerous measures.

The fundamental problem was that the banks in the eurozone had strong ties to their home countries, as they mainly held bonds from their own states. The concentration risks of banks in government bonds were further amplified by the mechanism that deposits from private clients are primarily protected by national legislation.

The euro debt crisis was never resolved! This national dependence on banks and states created a vicious cycle of state and banking crises, especially in southern European countries such as Greece, which in turn affected the entire EU and the euro due to the EU’s joint liability obligations, and which was supposed to be broken by the creation of the EU banking union. One positive aspect is that taxpayers‘ money is no longer used to bail out banks.

On the other hand, the EU has created a system of regulation for emergency situations, where in case of need, not only shareholders and bondholders of banks but also bank customers themselves are liable. The symptoms have been treated, but the root causes of the euro debt crisis have never been solved.

The EU banking union is still incomplete! This system is based on three pillars, which form a comprehensive liability cascade. The Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM) are already in force. The implementation of the European Deposit Insurance Scheme (EDIS) is still pending and would have even more far-reaching consequences for bank customers, as bank risks would also be shared across borders. The checking and savings accounts, as well as fixed deposits of a German citizen, could therefore be used to rescue an Italian bank in case of a crisis.

Furthermore, the statutory deposit insurance of €100,000 is only an illusion of security that would vanish in case of a major state and banking crisis. French President Emmanuel Macron has been calling for a common European budget for years, as well as the implementation of EDIS. This is the path towards a total EU debt union. That is why it is crucial for every forward-thinking investor to react to these developments for 2024 and the years to come by building intelligent and effective capital protection strategies outside of the fragile EU systems.

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