The EU Shouldn’t Stall a Banking Union • The U.S. Supremes: Dodging in the Name of Love

The European Union must commit to centralized banking regulation

Time is running out for the European Union to meet its own yearend deadline to create a single bank regulator or at least the legal framework for one. Sadly, Europe’s leaders are again leaning toward procrastination on a reform crucial to saving the euro.

Europe’s banking problem is entering its fifth year. The EU has 27 regulators with 27 sets of rules, undercapitalized banks that can’t afford to lend anymore, and governments that lack the wherewithal to bail them out. Eventually, weak banks will start to topple, and what has been a slow-burning crisis could become a disaster.

EU heads of state agreed in June to a common banking authority when they feared that bank runs might occur in Greece, Italy, and Spain. In exchange for giving up some national sovereignty, governments would be able to obtain capital for their banks directly from the EU’s bailout fund without adding to their own liabilities.

It made sense. When it comes to EU politics, however, nothing is simple. The member states remain at odds over such basics as whether the European Central Bank should be the übersupervisor and, if so, whether it should oversee all 6,000 EU banks or just the largest ones. And if the ECB gets the nod, how would banks in Sweden, the U.K., and other countries that aren’t in the euro area — and therefore don’t have a voice at the ECB — make sure their views are represented?

These aren’t small issues. Still, EU finance ministers should get on with it and present their heads of state with an outline of how a banking union could operate. The plan should include a single supervisor, at the very least. It should also offer an EU-wide system of deposit insurance and a process for unwinding failing banks.

One big obstacle is German Finance Minister Wolfgang Schäuble, who favors a two-tier system in which existing national regulators remain — and have the final word in most cases — while the ECB oversees a handful of global banks. This contradicts what the heads of state agreed to and should be tamped down. It also goes against reality: As Greece, Ireland, Spain, and other countries have seen, small banks are just as likely to run into trouble as big banks.

Objections over unequal treatment of non-euro countries can be finessed. The legal problem is that ECB rules can’t be changed without amending the underlying treaties establishing the central bank, which could take years. But the EU often skirts seemingly impossible treaty concerns with practical solutions.

One option is to make the ECB the ultimate regulator but require it to consult with non-euro-area governments, perhaps even giving them a veto during a phase-in period lasting several years. A variant of that option: Create a euro-area-only bank regulator and invite other countries to sign up later. After all, it would be difficult for the ECB to begin monitoring 6,000 banks overnight. In the meantime, as the ECB builds up its expertise, euro-area governments could work on a structural fix for the ECB or pursue treaty amendments.

Only with a supranational banking supervisor can the EU sever the unhealthy link between banks and governments. Further delays could undermine the market’s confidence and set back the clock on this year’s progress.

Marriage equality hits the Supreme Court

The question before the U.S. Supreme Court is not whether to allow same-sex marriage, but how. That should be the question, anyway. The court has agreed to hear two cases involving the constitutionality of same-sex marriage. Theodore Olson, one of the lawyers for proponents of same-sex marriage, called it “perhaps the most important remaining civil-rights issue of our time.” What the court must do is find a way to encourage the movement’s progress without needlessly antagonizing opponents.

The court will probably hear oral arguments in March in the two historic cases. One concerns the legality of a provision of the Defense of Marriage Act, the 1996 federal law that defines marriage as “a legal union between one man and one woman.” Under DOMA, gay couples in states where it’s legal for them to marry can’t claim federal tax breaks or other benefits that straight married couples receive.

The other case involves California’s Proposition 8, which bans same-sex marriage. Opponents of the 2008 law say it’s flatly unconstitutional, a violation of the 14th Amendment’s guarantee of “equal protection of the laws.” In February a federal appeals court agreed.

By accepting these two cases, the court has delineated a choice familiar to civil-rights advocates for decades and to defenders of American ideals of freedom for much longer than that: what kind of progress to accept. In the DOMA case, the court could uphold, strike down, or refine the provision at issue. In effect, the issue would be adjudicated state-by-state. The California case is more straightforward: Either same-sex marriage is constitutional or it is not. In all 50 states.

In the law, as in politics, there is an honorable tradition of dodging the question. It wouldn’t necessarily be horrible if the court didn’t pronounce next year that same-sex marriage is a constitutional right. It needn’t even rule on the constitutionality of DOMA, although the law infringes on what is traditionally a state right. Whatever the court does, however, it should be careful not to impede the expansion of rights and the cause of fairness that help to define America.

To read Ramesh Ponnuru on not widening the tax base and Stephen L. Carter on the NFL bounty scandal, go to:


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