Europe advances towards single banking supervisor

REUTERS

BRUSSELS

EUROPEAN Union leaders took a big stride towards establishing a single banking supervisor for the eurozone, agreeing it would enter into force next year, opening the way for the bloc’s rescue fund to inject capital directly into ailing banks.

European Council President Herman Van Rompuy said the 27 leaders agreed at a Brussels summit to adopt a legal framework by the end of this year giving the European Central Bank overall responsibility for banking supervision.

“Once this is agreed, the single supervisory mechanism could probably be effectively operational in the course of 2013,” he told a news conference after nearly 10 hours of talks.

French and EU officials said all 6,000 banks in the single currency area would gradually come under ECB supervision by 2014, starting with banks receiving state aid, then large crossborder institutions. Most dayto- day oversight would be delegated to national bodies.

Creating an effective banking union, for which this deal was a first step, is regarded by the International Monetary Fund and market economists as a key component in overcoming the euro zone’s three-year-old debt crisis.

French President Francois Hollande said the leaders did not discuss possible financial assistance for Spain, but he laid out a series of steps that could turn a corner in the crisis.

“Tonight, I have the confirmation that the worst is behind us,” he told a 3 am news conference.

“We are on track to solve the problems that for too long have been paralyzing the eurozone and made it vulnerable. If the December European summit confirms the decisions we took, if Greece finds a lasting solution, if Spain recovers funding mechanisms, then we will be done with a situation which weighed on markets and on the confidence in the eurozone.” German Chancellor Angela Merkel said it would take more than a couple of months before the supervisor was fully effective and direct bank recapitalisation could be considered.

However, the agreement appeared to be a defeat for German Finance Minister Wolfgang Schaeuble’s efforts to delay and limit the scope of European banking supervision.

Germany has been reluctant to see its politically sensitive savings and cooperative banks come under outside supervision. It rejects any joint deposit guarantee under which richer countries might have to underwrite banks in poorer states.

The deal came after the leaders of France and Germany, Europe’s central powers, held a private meeting after clashing in public over greater EU control of national budgets.