Social Europe

politics, economy and employment & labour

  • Themes
    • Global cities
    • Strategic autonomy
    • War in Ukraine
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter
  • Membership

ECB lobbies for banks, instead of supervising them

David Hollanders 19th December 2022

The ECB has taken upon itself to challenge the Spanish government over a temporary tax on the profits of commercial banks.

European Central Bank,ECB,Spain,tax,banks
Spain’s economy minister and first vice-president, Nadia Calviño, points to the high profits made by Spain’s big banks in the first three quarters of 2022 as legitimation for the tax (Alexandros Michailidis / shutterstock.com)

The European Central Bank should supervise banks on behalf of European citizens. Since this monetary authority became supervisor of all ‘significant’ eurozone banks in 2014, it has however been doing the opposite: it supervises member states on behalf of commercial banks.

Take its opinion ‘on the implementation of temporary levies on certain credit institutions’ which the Spanish government has been considering. The opinion was published in November and attempts to shield banks from taxation. It is further evidence that the relationship between the ECB and commercial banks is symbiotic: the ECB helps banks to remain not only ‘too big to fail’ but also too politically connected to tax.

The Spanish socialist government—which replied that it would go ahead with the law—intends to tax the interest and commission incomes (the fees) of banks. The tax can hardly be considered excessive. It is effective during two years (2023-24), it only applies to banks reporting more than €800 million in income, it only covers net income and the rate is only 4.8 per cent. The proposal is motivated by the wish to distribute more evenly the burden of inflation in Spain.

Banks’ ‘resilience’

The ECB does acknowledge that net interest income ‘tends to expand on impact as policy rates increase’ and that ‘[l]ow-income households are hit harder’ by soaring energy prices, as they ‘spend a higher proportion of their budget on energy-related goods’. The drawback of the tax seems to be that shareholders and bankers will see their bonuses and dividends respectively reduced.


Become part of our Community of Thought Leaders


Get fresh perspectives delivered straight to your inbox. Sign up for our newsletter to receive thought-provoking opinion articles and expert analysis on the most pressing political, economic and social issues of our time. Join our community of engaged readers and be a part of the conversation.

Sign up here

For the ECB, taxing banks jeopardises the financial stability of the eurozone—identifying this generic notion with the ‘resilience’ of banks before reducing that to their profitability. Dampened profits would in turn affect growth, as banks would lend at higher interest. The ECB further advises against taxing financial institutions to fund government spending: fiscal and monetary policy, it says, should be separate. It also objects that competition between banks would be impaired by the proposal.

With equity rates of 4-5 per cent, banks are indeed borderline insolvent, by design. It might very well be that modestly taxing profits would thus spell trouble. Apart from banks themselves, however, the architect of this constant threat of failure is their supervisor—the ECB. If the ECB (rightfully) judges banks fragile, it should impose higher equity requirements, starting with a moratorium on dividend and bonus payments.

Since the 2008 global financial crash, banks have had to be rescued with taxpayers’ money, as they have a monopoly on the execution of financial transactions and the offering of financial accounts. The privatisation of these two vital public functions (as the economist Karl Polanyi would have put it) of course justifies supervising commercial banks. The ECB has been in charge of that since 2014 but it does not act accordingly.

Rather, it allows the too-big-to-fail blackmail to continue, by suggesting that banks will increase interest rates if modestly taxed. This though increasing interest rates is exactly what the ECB has itself been doing in 2022. It could instead attach lending conditions to banks borrowing from it.

Taxpayers’ money

The call to separate fiscal and monetary policy betrays further cognitive dissonance. Ever since 2008, the ECB has endorsed rescuing banks (monetary) with taxpayers’ money (fiscal). In 2010 it sent secret letters to the Irish government, to press Dublin to use public expenditure to make banks bondholders’ whole—against the threat that ‘emergency liquidity assistance’ would be withheld from insolvent banks, thereby bankrupting the entire system.

In its role as a member (with the European Commission and the International Monetary Fund) of the ‘troika’, the ECB also forced Greece in 2010-15 to repay bank creditors by raising taxes on households and consumption (VAT). Taxation on citizens should thus be increased to pay off banks but banks may not be taxed to fund government spending supporting citizens.

It was immaterial to the ECB whether spending cuts lessened the ‘resilience’ of the Greek public. Indeed the Memoranda of Understanding (MoU) with Greece could not be challenged on grounds of violating labour or social rights, because the European Stability Mechanism—which borrowed from banks and then lent to Greece, which then repaid the very same banks, the ECB and the IMF—falls outside European Union law.

This asymmetric conflation of fiscal and monetary policy is reiterated in the opinion on Spain. The ECB advises against generic fiscal support for households, as this would threaten debt sustainability—it being one of Spain’s creditors, alongside commercial banks.


Support Progressive Ideas: Become a Social Europe Member!


Support independent publishing and progressive ideas by becoming a Social Europe member for less than 5 Euro per month. You can help us create more high-quality articles, podcasts and videos that challenge conventional thinking and foster a more informed and democratic society. Join us in our mission - your support makes all the difference!

Become a Social Europe Member

Financial-transactions tax

As to the ECB’s claim on competition, it is indeed somewhat unsatisfying that only Spanish banks are to be taxed. In 2010-13 the ECB, however, fought tooth-and-nail to block an EU-wide tax on financial transactions, which a number of member states supported. The then ECB president, Jean-Claude Trichet, opposed it as putting ‘sand in the machine’. Differentiation of tax levels is moreover part and parcel of the EU. Corporation tax is lowest in Ireland, tax exemption for Greek churches has survived all MoUs and ECB employees are not taxed at all. For better or worse, fiscal policy is the prerogative of member states.

Of course, many actors are trying to influence governments to lower taxation for themselves or their allies. One is the ECB, which consistently opposes any taxation of financial actors. It advised for example in 2019 against a legislative proposal in the Lithuanian parliament to tax ‘assets of certain financial market participants’.

The only truly supranational EU institution is actively working against European citizens, to enrich shareholders and the employees of banks. This is hardly surprising, given its activities in the eurozone crisis and the revolving door between the ECB and commercial banks. But it is deeply anti-European all the same.

David Hollanders
David Hollanders

David Hollanders is a lecturer in economics in the Department of European Studies at the University of Amsterdam.

You are here: Home / Economy / ECB lobbies for banks, instead of supervising them

Most Popular Posts

Belarus,Lithuania A tale of two countries: Belarus and LithuaniaThorvaldur Gylfason and Eduard Hochreiter
dissent,social critique,identity,politics,gender Delegitimising social critique and dissent on the leftEszter Kováts
retirement,Finland,ageing,pension,reform Late retirement: possible for many, not for allKati Kuitto
Credit Suisse,CS,UBS,regulation The failure of Credit Suisse—not just a one-offPeter Bofinger
Europe,transition,climate For a just and democratic climate transitionJulia Cagé, Lucas Chancel, Anne-Laure Delatte and 8 more

Most Recent Posts

Barcelona,feminist,feminism Barcelona: a feminist municipalism now at riskLaura Pérez Castaño
Spain,elections,Sánchez Is Spain on the right track?Bettina Luise Rürup
CBI,Confederation of British Industry,harassment Crisis at Britain’s CBI holds lessons for othersMarianna Fotaki
central and eastern Europe,CEE,renewable Central and eastern Europe: a renewable-energy win-winPaweł Czyżak
Cape Town,inequality Tackling inequality in the city—Cape TownWarren Smit

Other Social Europe Publications

Bildschirmfoto 2023 05 08 um 21.36.25 scaled 1 RE No. 13: Failed Market Approaches to Long-Term Care
front cover Towards a social-democratic century?
Cover e1655225066994 National recovery and resilience plans
Untitled design The transatlantic relationship
Women Corona e1631700896969 500 Women and the coronavirus crisis

Eurofound advertisement

Unaffordable and inadequate housing in Europe

Unaffordable housing is a matter of great concern in the European Union. It leads to homelessness, housing insecurity, financial strain and inadequate housing. It also prevents young people from leaving their family home. These problems affect people’s health and wellbeing, embody unequal living conditions and opportunities, and result in healthcare costs, reduced productivity and environmental damage.

This new report maps housing problems in the EU and the policies that address them, drawing on Eurofound’s Living, working and Covid-19 e-survey, EU Statistics on Income and Living Conditions and input from the Network of Eurofound Correspondents.


DOWNLOAD HERE

Foundation for European Progressive Studies Advertisement

The spring issue of the Progressive Post magazine from FEPS is out!

The Special Coverage of this new edition is dedicated to Feminist Foreign Policy, to try to gauge its potential but also the risk that it could be perceived as another attempt by the west to impose its vision on the global south.

In this issue, we also look at the human cost of the war in Ukraine, analyse the increasing connection between the centre right and the far right, and explore the difficulties, particularly for women, of finding a good work-life balance and living good working lives.


DOWNLOAD HERE

Hans Böckler Stiftung Advertisement

The macroeconomic effects of re-applying the EU fiscal rules

Against the background of the European Commission's reform plans for the Stability and Growth Pact (SGP), this policy brief uses the macroeconometric multi-country model NiGEM to simulate the macroeconomic implications of the most relevant reform options from 2024 onwards. Next to a return to the existing and unreformed rules, the most prominent options include an expenditure rule linked to a debt anchor.

Our results for the euro area and its four biggest economies—France, Italy, Germany and Spain—indicate that returning to the rules of the SGP would lead to severe cuts in public spending, particularly if the SGP rules were interpreted as in the past. A more flexible interpretation would only somewhat ease the fiscal-adjustment burden. An expenditure rule along the lines of the European Fiscal Board would, however, not necessarily alleviate that burden in and of itself.

Our simulations show great care must be taken to specify the expenditure rule, such that fiscal consolidation is achieved in a growth-friendly way. Raising the debt ceiling to 90 per cent of gross domestic product and applying less demanding fiscal adjustments, as proposed by the IMK, would go a long way.


DOWNLOAD HERE

ETUI advertisement

The four transitions and the missing one

Europe is at a crossroads, painfully navigating four transitions (green, digital, economic and geopolitical) at once but missing the transformative and ambitious social transition it needs. In other words, if the EU is to withstand the storm, we do not have the luxury of abstaining from reflecting on its social foundations, of which intermittent democratic discontent is only one expression. It is against this background that the ETUI/ETUC publishes its annual flagship publication Benchmarking Working Europe 2023, with the support of more than 70 graphs and a special contribution from two guest editors, Professors Kalypso Nikolaidïs and Albena Azmanova.


DOWNLOAD HERE

About Social Europe

Our Mission

Article Submission

Membership

Advertisements

Legal Disclosure

Privacy Policy

Copyright

Social Europe ISSN 2628-7641

Social Europe Archives

Search Social Europe

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Follow us

RSS Feed

Follow us on Facebook

Follow us on Twitter

Follow us on LinkedIn

Follow us on YouTube