What next for Europe’s banking union?

ACCORDING TO AN analogy popular in Brussels, the euro zone is a house that needs fixing. Everyone frets about its ability to withstand a gale. But the builders are nowhere in sight. The owners cannot agree on the repairs that are needed, much less on how to do them. When Olaf Scholz, Germany’s finance minister, cautiously accepted the idea of a common deposit-insurance scheme on November 5th, that removed one point of contention. But as one row is resolved, another—on the regulatory treatment of banks’ holdings of sovereign debt—has reopened.An infamous feature of the sovereign-debt crisis in 2009-15 was the “doom loop”, through which weak banks and sovereigns dragged each other down. In 2012 members agreed that the doom loop needed to be broken, and the monetary union backed by a banking union. A common supervision and resolution framework for large banks has since been set up. But barely any progress has been made on common deposit insurance, because northerners are terrified that their taxpayers would be liable for risky loans made by southern banks, to their home governments among others. Now Mr Scholz seems amenable—provided other reforms happen. The most contentious would penalise banks for holding heaps of their home countries’ sovereign debt—long a non-starter for Italy and other heavily indebted states.
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