In a recent article for the Financial Times, Germany’s Finance Minister Wolfgang Schaeuble finally explained to an international audience why he thinks treaty changes are necessary in order to provide “a safe legal base for a European resolution authority,” arguably the most controversial part of the banking union that euro area countries agreed to create roughly one year ago. Understandably, Schaeuble’s aim is to minimize risks to German taxpayers. For many Germans, a banking union is seen as yet another attempt to reach into their pockets. Germans believe that their banking sector is sound, while other governments need to do their homework. According to this view, centralized supervision can make sense, sharing costs does not.

However, a banking union with a malfunctioning or non-existent resolution authority will never work. In order to properly function, a resolution authority needs to be able to wind up failing banks. To avoid bank runs and excessive burdens on taxpayers, shutting down banks needs to be done in an orderly way. Costs have to be divided among shareholders, creditors and, if necessary, the taxpayers. It must be clear who pays and for what.

Schaeuble has decided that the time has come to dispel growing doubts about the German commitment to the banking union. He has done so by making his own proposals for the union. He is aware of the fact that many, including the President of the European Central Bank (ECB), regard the banking union as a ‘conditio sine qua non’ for a solution to the debt crisis. In fact, as long as the commitment to sever the links between sovereigns and their banks cannot be fulfilled, the ECB will be forced to provide zombie banks with liquidity. The ECB will probably not risk renewed disorderly disruptions to financial markets—the situation in Europe is far too fragile for that. According to most European central bankers, the controversial rescue of Cyprus should not be seen as a template for future rescue operations, but rather as an exception. The sooner political leaders act on the banking union, the sooner the banking sector in Europe can be restructured. Healthy financial institutions are a prerequisite for a healthy economy. We are far from there.

The German finance minister now admits that the process needs to move along more rapidly. This is progress. He admits that treaty changes are necessary but that they take time. He therefore proposes to go ahead with an interim solution: a resolution mechanism that should be based on a network of national authorities and deposit insurance schemes. He even implicitly recognizes that such a ‘network’ would fail to break the links between sovereigns and their banks. Winding up a failing bank could in fact push a member state deeper into debt. In order to avoid such an outcome, Schaeuble’s proposal calls for making the European Stability Mechanism a part of the interim solution as a financial backstop of last resort.

His message to the constitutional court in Karlsruhe is that Germany is not moving outside of its legal boundaries. Thus, there is no need to stop such a proposal. His message to German taxpayers and voters is that they will not be on the hook financially. Finally, his message to fellow Europeans is that Germans already are on the hook through the ESM. The bailout fund is turning into the embryonic common deposit insurance scheme that many outside of Germany think is a prerequisite for a fully functioning banking union.

There is, however, a caveat with this plan. Schaeuble is also issuing a warning to his European partners. If they really want the full deal on the banking union, they need to get serious about treaty changes. Ultimately, for Schaeuble there is much more at stake. The current debate is not only about the banking union; it is about fiscal and political union in general. The full banking union is the bargaining chip to get others, France in particular, to move on the most ambitious institutional overhaul of the European Union and the euro zone. The German finance minister is coming out of his corner swinging. It is now mainly up to his partners in Paris to respond.