What does it tell us about a eurozone banking union if the member states are rushing to pass unilateral legislation on financial regulation? France and Germany have, in short succession, proposed measures to ringfence banks’ proprietary trading activities. The two countries have co-ordinated their moves with each other, but with nobody else. Would not a ringfence be a power any self-respecting banking union would want to usurp?

The answer is that banking will remain a national activity in the eurozone for all economically relevant purposes. The European Central Bank will become the common bank supervisor. This has indeed been agreed. But there will be no common deposit insurance. The resolution system likely to emerge later this year is also flawed. It will end up protecting only the taxpayer of the creditor countries from bank failures in the debtor countries. But it will not accelerate the resolution of the eurozone’s undercapitalised banks. My suspicion is that the ultimate intent of the Franco-German legislation is to secure the position of their national champion banks.

The proposed legislation aims to force banks to put their proprietary trading (that is, trades made on their own accounts rather than on behalf of a customer) into separate legal entities. But this does not affect market making, for example. Erkki Liikanen, the governor of the Finnish central bank, proposed a full separation in his European Commission report, published in October. The commission has been planning an EU-wide directive, but the Franco-German action has now pre-empted the outcome.