EU finance ministers agreed after marathon overnight talks to create a single banking supervisor for the euro zone and like-minded countries. The 27 leaders were set to give their stamp of approval at a summit that opened in a mood of optimism. (...)
"Since the summer, we have made a lot of progress in our efforts to overcome the immediate crisis in the euro zone," European Council President Herman Van Rompuy told the leaders as he opened the summit. "The worst is now behind us but of course much still needs to be done." At the summit, held days after the EU received its Nobel Prize in Oslo, leaders were to discuss closer fiscal integration in the currency union, a drive that some officials worry has lost momentum since ECB President Mario Draghi calmed markets by pledging in July to do "whatever it takes" to save the euro. European officials acknowledge privately that bolder steps towards closer integration of the single currency area will be on hold until after a German general election next September.
The next stages of banking union - creating a resolution fund for winding up troubled banks and coordinating deposit guarantees to protect savers - will be fought over even harder. And then there will be political and financial hurdles to negotiate through the year. "The fact that the situation in the financial markets is now better than before should not be seen by the governments as a way to procrastinate," European Commission President Jose Manuel Barroso told reporters.
The immediate priority is to finalize the legal framework for banking union and get European Parliament backing. Then the ECB must hire staff and decide how to carry out its mandate. It is not expected to be fully operational before March 2014. Under the deal sealed on Thursday, officials said the ECB would regulate some 150 to 200 banks directly - all major cross-border lenders and state aided institutions - with the power to delve into all 6,000 banks in case of problems.
Non-euro Britain, Sweden and the Czech Republic, the most skeptical EU members, allowed the agreement to go through but said they would not be joining the banking union. Other non-euro members left the decision open.
Completing such a complex process would be one of the EU's biggest achievements since the region's debt crisis first erupted three years ago. The aim is to begin to sever the so-called doom loop between indebted banks and shaky governments that has hit Ireland and Spain particularly hard.
Still, creating a full banking union, with powers to wind down failed banks and guarantee deposits across the euro zone, is likely to take several years. And it forms just part of the bloc's masterplan to bolster the architecture of the euro zone and prevent a repeat of the crisis that has threatened to tear the single currency project apart. It promises to be a long and tortuous journey requiring political commitment from euro zone and non-euro members alike, something that countries such as Britain, with a restive Eurosceptic population, will find particularly stressful.
Each step towards closer union means a greater surrender of sovereignty by independent nations and spurs a political backlash, especially in times of economic hardship, social tension and high unemployment.Van Rompuy and the heads of the European Commission, ECB and Eurogroup put forward a bold blueprint for closer euro zone fiscal, economic and political integration to the sumit.
But Merkel has lowered expectations for progress now on that agenda, saying EU leaders should focus on steps notably to improve economic competitiveness that can be implemented in the coming months. She is determined not to frighten German taxpayers with talk of sharing more liability for banks or debts, and wants to avoid any such decisions until after the election in Germany, with campaigning already beginning to warm up.
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