5.5.2.5 Fiscal sovereignty of Member States

According to Mr Constâncio in his role as vice-president of the ECB, participant countries in the European Banking Union are shedding considerable sovereign power. In accepting the transfer of supervision and resolution of banks to the European level, Eurozone countries are committing to a remarkable sharing of sovereignty which could be a positive sign of their willingness to deepen European integration in general.1 While the fiscal sovereignty of Member States is restricted by State aid control and by the agreements set out in the Fiscal Compact Treaty,2 it is, however, still the prerogative of Member States to decide whether or not to grant State aid to a bank.3 The SRB and national resolution authorities cannot prevent a Member State from providing State aid to a failing bank. Only the Commission can order the repayment of unlawful aid in accordance with Article 108(2) TFEU.

This is different in respect of the GFST. According to Gortsos, the GFST enable a Member State to provide funding to a bank in resolution through State resources.4 In the author’s view, the GFST do not enable a Member State to provide funding to a bank in resolution, as they could already provide public funding prior to the introduction of the resolution framework. The resolution framework, however, introduces conditions that the Member States should comply with when providing public funding through the GFST. If they do not comply with these conditions when recapitalising or taking a bank in ownership, they would be violating the resolution framework. This is interesting, as under the State aid regime for the banking sector it is possible for Member States to notify aid measures which they consider compatible with Article 107(3)(b) TFEU to the Commission without meeting the conditions set out in the State aid regime for the banking sector and the Commission may authorise the proposed aid in exceptional circumstances.5 The GFST therefore seem to restrict the prerogative of Member States to choose for recapitalisation or nationalisation of a bank. Member States can still choose to do so, but they need to comply with the resolution framework. The same is true for precautionary recapitalisation and guarantees.