emergency lite

Don't Bank on a Bailout

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Don't need any more money. Elke König, the head of the EU's new bailout fund.
  • Why it matters

    Why it matters

    The size of the E.U.’s new bank bailout fund is key to whether taxpayers will once again have to rescue European banks in a future crisis.

  • Facts

    Facts

    • German trade unions consider Europe’s resolution fund under-financed.
    • The European fund has been allotted only €55 billion ($60 billion) to wind down banks.
    • But banks have to pay into the pot by 2023, much faster than a German predecessor.
  • Audio

    Audio

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Europe’s new bank-financed bailout fund has barely gotten off the ground, and already there are concerns that it may be too small to stave off another financial crisis in the future.

Left-leaning groups in Germany are particularly upset by the European plans for a levy on banks, fearing it is much less robust than is warranted by the number of “too-big-to-fail” banks that exist in Europe today, and may not be enough to prevent taxpayers from again footing the bill for bank failures one day.

The German Finance Ministry has rejected the accusation, and some other politicians have also come to its defense, noting that banks are being pushed to fill the bailout fund’s coffers more quickly than any of its predecessors.

The new European bailout fund is one of the cornerstones of an ambitious effort in the past few years to bring the European Union’s largest banks under one regulatory roof, including by making the European Central Bank responsible for supervising the largest financial firms on the continent.

It is a bid to draw lessons from the 2008 global financial crisis, when taxpayers in various European countries were forced to bail banks out, and cross-border squabbles between regulators delayed attempts to nurse the financial system back to health.

Germany has been something of a trailblazer for the European project, having set up its own bank-financed bailout fund in 2011. Elke König, the one-time head of Germany’s own banking supervisor BaFin, has been nominated to lead the new European resolution fund, which is designed to help finance the liquidation of a large bad bank in future and avoid a system-wide financial crisis in the process.

But trade unions and politicians from the Left Party in Germany said they were concerned the European resolution fund had been allotted only €55 billion, or $60 billion, to wind down potential trouble banks. That is far less than the €70 billion Germany had planned for its own national emergency fund for troubled financial institutions.

“Europe will have a much smaller fund for a much bigger problem,” said Axel Troost, the financial policy spokesman of the opposition socialist party The Left.

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