Sunday, 21 July, 2019

This is what a European passbook could look like

Brussels – Europe’s savers receive little interest on their savings – and at the same time get small companies too rarely credit. Both are consequences of the financial crisis. Now the EU Commission wants to tackle these problems in one fell swoop. Their antidote is a new EU passbook for Europe’s citizens. It is to attract small savers with higher interest rates than are usually available at commercial banks. The collected money should be available according to the plans for investments of companies. What sounds like good news for savers, banks see as a threat to their business model.


Picture: piggy bank 

What is the EU Commission planning?

A special savings account. Europe’s citizens could deposit their money on one – after the EU color – “blue savings account”. In the words of EU Internal Market Commissioner Michel Barnier, this could also be “tax-advantaged to send a signal of confidence.” The savings account may also guarantee a certain return throughout Europe. Suppliers would be promotional or investment banks such as the European Investment Bank EIB.

How should that look in concrete terms?

Nobody knows that yet; Details are unknown. In its 19-page communication, the Brussels Commission only describes its idea on 12 lines. The paper cites the EU savings account as one of several ways to raise more money for corporate investment. By the end of the year, the EU authorities want to present a bill. It is now necessary to take account of “considerations such as interest rates, national deposit insurance, complementarity with existing national programs, acceptance of savings and lending criteria”.

What happens to the money collected?

It will go in the form of loans to SMEs to secure their funding. The EU also wants to use it for infrastructure development or for major projects such as roads or hospitals.

Could the plans ever become reality?

That’s completely open. First of all, the EU Commission wants to present a concrete proposal by the end of the year, which will then need the green light from the EU member states and the European Parliament. This process usually takes two years. In addition, after the European elections in May, a new EU commission with a different cast will start its work – whether it pursues the idea is unclear.

What advantages would the consumer have for an EU passbook?

Savers are likely to enjoy interest rates that could be slightly higher than commercial banks. Because in order for small savers to make their money really available for companies, Brussels would have to improve the returns probably with subsidies. Especially for savers in low-interest countries this would be interesting.

And what risk would be for savers?

With a fixed earmarking, they would take risks that would otherwise be borne by the banks. Whether the investors really are so willing to take risks is unclear. Experts also puzzle over how the EU wants to guarantee a certain return. This could be done through funds from the European budget, which is very controversial.

Are there such special savings accounts already?

Yes. Barnier referred to Italy, France, Germany and other countries: “There are such national passbooks.” For Germany, the EU Commission includes German home savings contracts. However, the direct model is the French Livret A. This guarantees a government-fixed return and the interest income is tax-exempt up to a certain investment amount. The savings go to state savings banks, which thus promote small companies or government projects.

Why are the banks against a European passbook?

Because they fear for their business. Their argument is that the money flowing on such a new savings account would be lacking by the banks. “Customers could withdraw their money from the banks,” warns the Chief Executive of the Association of German Banks, Michael Kemmer. The President of the German Sparkassen- und Giroverband (DSGV), Georg Fahrenschon, demands: “We expect that Brussels will take greater account of the successful model of local and regional house banks through a differentiated regulation.”