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What happens to SEPA if Europe fails?

Whatever we say about the Eurozone and its challenges,
particularly in light of the credit crunch, we have a problem.

When Ireland announced guarantees for all
customer deposits, without limits, earlier this month it led to a crisis of
confidence. The crisis
was the flow of funds from all EU countries to Ireland as a result, and so
Greece followed and soon all governments were backed into a corner where they
had to try to follow suit, as far as possible.

This on
the back
of Ireland’s negative vote on the EU Treaty has made them hugely
unpopular with the Brussels and pro-Europe community.   A community that already
has strains, as reported
in the International Herald Tribune back in May.

“Greece, Portugal,
Italy and Spain – the sun-drenched fraternity sometimes called Club Med – are
struggling with eroding competitiveness, rising prices and bloated debts.
Meanwhile, Germany, the sick man of Europe for most of the euro era, is suddenly
vigorous again … when leaders and laggards use the same money but have
opposite problems, tensions are bound to surface.”

So it is actually a cause for celebration that we have made it
to ten years of Euro Union.

The Euro
celebrated its tenth birthday this year, as did the ECB and the EBA, and we have
many new investments and infrastructures that are making Europe more effective
and efficient: EURO1, STEP1, STEP2, Equens, SIA, Vocalink, TARGET, TARGET2,
TARGET2 for Securities, EuroCCP, EMCF …

Ah. There’s an interesting one. EMCF.  Formerly a Dutch bank
Clearing System, now a nationalised system and soon to be part-privately owned
by NASDAQ OMX and maybe a few others.

We are by no means certain of our infrastructures or even of
our Union, but will these things fall apart?
If the EU
disbanded tomorrow, would our systems be redundant?
If
Europe fails, do SEPA, MiFID and all of our investments fail too?

I don’t think so.

Personally, I’m an advocate of a strong European Economic &
Monetary Union. I’m not an advocate of a European Political Union however. The
two are very different.

The former
means that we can share services to compete commercially with other large
geographic zones, especially America and China.

The latter gets us into discussions about Brussels not allowing
us to have our sausages:

It gets into all the silly stuff of Euro-meddling we all hate.

Somewhere in between is our tax, fiscal
and company laws, which is where we all stumble between European harmony and
European hate.

But, politics aside,
what does this mean for banks and SEPA instruments, for example?

Well I can take note of some
people’s
cynicism about SEPA and the PSD, after all it’s been nine months
and we’re just toddling along slowly but surely towards success. Take note
however, that I did say “slowly but surely towards success”.

This is a marathon, not a sprint.

What we are finding is that the time we
are taking is long, but the process is certain and has a goal. It does not have
an end-date, which everyone still points to as a problem, but it has a goal.

The goal? To create a pan-European
financial infrastructure for processing payments and allowing investments,
without cross-border barriers.

That
goal is valid regardless of the EU in my view.

After all, for global and international banks and corporates, a
pan-European infrastructure for processing payments and allowing investments,
without cross-border barriers, makes absolute sense.

For efficiency of processing and for effectiveness of costs,
investments and organisation.

So we
have these
sceptics,
about SEPA, the PSD, Europe and all of its operations so here’s to
the rub – is SEPA working?

For this,
I’ll use the EBA’s figures, as they have had STEP2 operating with SCT’s since
28th January, and seem to know a little about their subject matter.

STEP2’s SCT facility has 113 direct
participants in STEP2’s SCT operations in 21 countries, connecting 3,967
indirect participants who support over 5,220 institutions in 35 countries.

At SIBOS this year, the EBA gave me these
figures for SCT volume and value:

                 Average daily volume      Average daily
value
August             
185,673                         €1.24 billion
July                    196,003                         €1.35
billion
June                  
185,187                         €1.32 billion
May                    169,526                         €1.14
billion
April                   159,114       
                 €1.01 billion
March                152,385                          €878
million
February              95,041            
              €535 million
January               
32,741                          €194 million

With around 28% of these credit transfers for domestic
payments, rather than cross-border, they can claim some success.  And yes, it’s
early days, but this is a marathon, not a sprint.

So sure, SEPA Direct Debits have issues and SEPA Card
Frameworks aren’t necessarily clear and simple (do we need
another purley European Card operator?)
but, whatever the discussion,
there’s no point in being sceptical or cynical about this stuff. 

Why?

Because there’s no way these services are going to fall apart.

Even if everything else fails, they
will just become Euro Shared Service Centres for cross-border processing and
pan-European investing. These services will still exist because they are needed.
They are needed by both banks and corporations for efficiency and effectiveness
of payment processing, clearing and settlement.  And they will be supported
because of the time taken and the investments made.

So here’s my bet.

Regardless of whether the European political issues disband our
process towards a Federal Europe, we will still have an Economic & Monetary
Union (EMU) and, even if EMU and the Euro falls apart, we will still have T2S,
TARGET2 and SEPA instruments.

They
won’t go away, but will be shared services for EU banks.

So start supporting the movement towards the goal. Be
constructive and remember the end-game. 

The end-game?

Oh yes,
worth a reminder, to create a pan-European financial infrastructure for
processing payments and allowing investments, without cross-border barriers.

Live with it.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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