The fragility of banks in the Eurozone’s periphery means that proposals for a European wide bank resolution fund are likely doomed to fail.

Many countries used public funds to bail out struggling banks at the onset of the financial crisis. Now, with austerity still biting, the chances of further bank bailouts by national authorities are relatively slim. Clemens Fuest examines Internal Market Commissioner Michel Barnier’s recent proposals for the European Commission to take responsibility for bank restructuring and the creation of a European bank resolution fund. While he finds the proposals to be sound, he also argues that the issue of large numbers of non-performing loans held by countries in the Eurozone’s periphery must first be solved, and banks and depositors in the core region need to be convinced of the benefits of risk sharing.