EU's Rehn anticipates return of slow growth in the second half of this year

(Source: Reuters)

The European Union's economic and monetary affairs commissioner Olli Rehn has said that he anticipates the return of growth to the Eurozone emerging as early as this year:

The ongoing process of deep economic rebalancing continues to impact on the European economy. We expect that growth will return only quite slowly in the second half of this year.

While the United States by and large proceeded with its financial repair in 2008 and 2009 ... this process in Europe is still only partially achieved. This is acting as a critical drag on progress to our economic recovery.

Rehn believes that banking union, or the "Single Supervisory Mechanism", will help the Eurozone. However many remain sceptical as to what this would achieve. Roland Vaubel, professor of economics at the University of Mannheim, believes that a banking union is a fix for a misdiagnosis:

Some justify banking union by referencing the failure of national regulators during the financial crisis. It’s true that they did fail to foresee it. But so did the European Commission – even though it’s responsible for the EU’s internal market. And although multinational banks did pose a problem for regulators, these issues have been handled effectively through bilateral cooperation between them. Would 27 EU members, or a majority among them, have known better?

Perhaps the strongest justification for European supervision is that policies in one country cause external effects in others. But, the internal effects of bank failure are much greater than those outside. A national regulator has a stronger interest in adequate supervision than a European authority deciding by majority vote. It follows that supervisory control should primarily rest with the national supervisory authority. National authorities tend to be better informed and have better incentives.

Most perniciously, banking union advocates suggest that there should be a level playing field in banking regulation. But there are key reasons not to impose equal conditions on all markets. National banking systems differ, and consequently have different needs. Regulatory competition generates peer pressure and encourages innovation. Further, decentralised supervision helps to diversify regulatory risk.

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