Explaining the Creation of the EU Banking Union: The stability culture, the vicious circle, and the limits of power and interests

The establishment of the EU banking union presents two major shortcomings of explanations focusing exclusively on material interests and bargaining power: first, they fail to explain the preference formation of the most important actor – the German government. The banking sector was divided between public and private banks, and there is no clear-cut pattern about whose interests the German government promoted. Second, material bargaining power cannot account for Germany’s concessions despite favourable power asymmetries. This article demonstrates that an ideational frame can fill the gaps. Ideas explain Germany’s preferences on the basis of beliefs about the ‘stability culture’. The use of ideas as strategic resource by Germany’s opponents explains why Germany made significant concessions. Germany’s government publicly acknowledged breaking the ‘vicious circle’ between banks and sovereigns as key objective of the banking union. This became a rhetorical trap used by the Southern coalition to force the German government to concessions