FRANKFURT — Eurogroup President Paschal Donohoe on Friday, called for “bold actions” to complete the European Union’s Banking Union and boost capital markets, arguing that resilience and better regulation are crucial for the bloc’s stability in an increasingly “disorderly” and fragmented world.
In a keynote speech titled ‘Shaping financial regulation in an era of distrust’ at the Sixth European Central Bank (ECB) Forum on Banking Supervision in Frankfurt, the Eurogroup chief emphasized that the hard-won financial stability achieved since the 2008 global financial crisis should not lead to complacency.
“This hard-fought financial stability that we have come to know in recent years was not achieved by standing still, therefore we must be bold again and make bold decisions,” Donohoe said.
The Imperative of Resilience
Donohoe, who is also Ireland’s Minister for Finance, acknowledged that the world is defined by “increasing disorder defined by geopolitical tensions and economic fragmentation.” He stressed that the establishment of the Single Supervisory Mechanism (SSM) was a landmark achievement that strengthened the euro area’s banking system following the financial and sovereign debt crises.
He reflected on the costly aftermath of the 2008 crisis, which saw banks “under-capitalised and under regulated,” leading to public bailouts, a surge in unemployment, and sovereign debt crises, including in his native Ireland.
“The aftermath of the financial crisis of course also led to an erosion of trust in our institutions, a trust that we have worked very hard to reclaim,” he stated.
Donohoe highlighted the considerable improvement in bank resilience under the SSM’s supervision. “Rigorous stress tests have shown that our banks are now in a position that they can weather severe economic shocks,” he noted.
Three Pillars Against Fragmentation
The Eurogroup President cautioned that rising geopolitical and economic fragmentation is questioning international cooperation, which he called the “backbone of a strong international financial system.” He warned this threatens to “erode the hard-won progress we have achieved.”
Donohoe proposed a three-pronged response to safeguard financial stability:
Transparency: “Economic actors, governments, politicians, and above all our citizens must understand the steps we are taking and why.”
Preserving Independence: Protecting the independence of regulators to maintain financial stability.
Private Sector Participation: Ensuring that banks and the private sector are part of any response to a crisis.
He concluded that this approach could create a “virtuous circle” instead of a crisis feedback loop.
The Push for Completion
While affirming that resilience is the foundation of a sound banking sector, Donohoe also pushed for efficiency and competitiveness. He argued against a “race to the bottom” in financial regulation but called for an examination of what can be “improved, streamlined and simplified.”
“I believe Europe does not need more or less regulation we must ensure that we have better regulation,” Donohoe asserted.
He framed the finalisation of the Banking Union and the implementation of the Savings and Investment Union initiatives as key ingredients for securing Europe’s longer-term prosperity and competitiveness, especially in light of the urgency to address structural issues like digitalisation, the green transition, and financing defence expenditure.
The President concluded with an anecdote about commitment, quoting Irish author Frank O’Connor: “as an adventurous boy when he and his friends would come across a wall that appeared altogether too high, they would throw their hats over the wall, so they had no option but to find a way over.”
“We must throw our hats over that wall and commit to delivery,” he urged the political leaders and key institutional actors.
