Lithuanian governor says banking union does not require treaty change

Vitas Vasiliauskas, the governor of the Bank of Lithuania, has dismissed concerns over Europe's attempts to introduce banking union, saying he believes compromise can be reached on all three main elements without changes to the European Union's (EU) treaties.

Lithuania is due to take over presidency of the Council of the EU from Ireland on July 1, and has said making progress towards the banking union's single supervisory mechanism (SSM), single resolution mechanism (SRM) and common deposit guarantees is a key aim. Working groups will organised by the Ministry of Finance, with support from experts at the central bank.

In an interview with CentralBanking.com, Vasiliauskas acknowledged that there had been calls for treaty change, notably from German finance minister Wolfgang Schäuble, but said he did not think it was a necessary precondition for banking union.

"My belief is that agreement is possible, and we can find a solution within the existing legal framework," he said. "As the SSM showed, it was possible to find a way to introduce the ‘first leg' of banking union on the current legal basis."

Opposition to banking union has been wider than the question of treaty change, however. Common deposit guarantees are particularly controversial, especially among northern Europeans who are already disgruntled over bailing out their southern neighbours. Nevertheless, the Bank of Lithuania "strongly supports" full banking union, Vasiliauskas said, and the governor remains optimistic both that progress will be made during Lithuania's presidency, and that full banking union will eventually be implemented.

"I think finding a common solution for the SRM will be easier [than agreeing common deposit guarantees], and I hope to have good progress during our presidency," Vasiliauskas said. It would be a "much longer time" before there was agreement over deposit guarantees, he warned, adding that he did not believe there would be much progress during Lithuania's six-month presidency. "But we will see," he said.

‘Not scared' of handing competence to the ECB

The SSM, by contrast, has largely been agreed upon, but this too has its critics. At an event in London this week, Boris Vujčić, the governor of the Croatian National Bank, expressed concerns over the European Central Bank's limited experience with banking oversight. He worried that this would "cause a temporary decline in the quality of supervision".

Vasiliauskas suggested it would be wise to wait until more details of the SSM are known before passing judgement. However, he noted that around 90% of the Lithuanian banking system is made up of Scandinavian banks, so the Bank of Lithuania already has to co-operate internationally in its banking supervision. "I am not scared to provide some competence to the ECB," he said.

Loss of sovereignty is a concern among many countries, but this is a sacrifice everyone should have understood when joining the single currency, Vasiliauskas said. "If we want to have a fully functioning economic and monetary union we need more centralised solutions. If you are in the club, you have to have common rules and you have to play by those common rules."

Vasiliauskas urged policy-makers to recognise that the only solution to the eurozone's problems was more federalism, centralising greater powers in the EU. "This is the reality, and I think we should all agree this is the reality," he said.

"Full implementation of banking union is very important. Without full implementation I do not see there being a final solution to the eurozone's troubles."