News Column

Deal Struck on EU Banking Supervision; Questions Remain

Oct. 18, 2012
euro map

European Union leaders struck a deal Thursday on the creation of a joint banking supervisor for the eurozone, but it was not clear whether France or Germany had won in a standoff over competing demands.

The measure is a prerequisite for the eurozone's bailout mechanism to directly assist troubled banks and is seen as key to restoring trust in the common currency area amid its debt crisis.

The leaders decided that a "legislative framework" for the banking supervisor would be agreed by the end of the year, with a gradual implementation to follow in 2013, European Commission officials said.

This replaced the wording of a draft summit declaration, which had called for legislative proposals to be completed by December 31. It was not immediately clear whether the deal would still allow the banking supervisor to take up its work on January 1.

Germany and a handful of other countries had argued that the timetable was not realistic and would create false expectations.

But France arrived at the summit demanding swift agreement on the banking supervisor, pitting the bloc's traditional power tandem against one another.

"The only decision we have to take, to confirm in fact, is the establishment of the banking union by the end of the year and notably the first stage, which is banking supervision," French President Francois Hollande said earlier in the day.

Addressing the German parliament on Thursday morning, Chancellor Angela Merkel had insisted that "quality is more important than speed."

"We have to work very fast, but also very thoroughly," Merkel reiterated as she arrived in Brussels.

Merkel and Hollande met separately behind closed doors as they arrived for the summit, before entering into hours of negotiations with their 25 EU counterparts.

Banking aid recipient Spain was one of the countries originally pushing for a quick agreement on banking supervision, because it wanted the disbursements to circumvent Madrid and stay off government balance sheets.

But diplomats said during the course of the summit that Spain no longer considered this an urgent issue, saying instead that the focus should first be on setting up an effective banking supervisor.

It is the first step towards deeper integration of the eurozone, but much of the detail remains to be hammered out.

"There are a lot of questions and uncertainties in the concept," Lithuanian President Dalia Grybauskaite said at the start of the summit.

Sweden, a non-euro country that has to give its blessing for the banking supervision plans to proceed, wants them to specify "who is recapitalizing ... and who is paying" if a bank is in trouble, Prime Minister Fredrik Reinfeldt said.

"Because that's what the market wants to know and my taxpayers want to know," he said. "If you don't do this right, you don't solve any problems regarding markets or anything else."

Czech Prime Minister Petr Necas had threatened to block the proposal unless he was granted "guarantees" to protect his country's banking sector.

Hollande arrived at the summit suggesting that national timetables were hampering negotiations, referring to Germany's "electoral calendar." Merkel is up for reelection in 11 months' time.

"I can understand this difference in calendar but we have a common responsibility, France and Germany," Hollande said.

The summit agenda did not include Spain, speculated to need a market intervention to keep borrowing costs in check, while little more than a passing reference to developments in Greece was expected.

The meeting took place against a backdrop of rising social unrest in southern Europe, where austerity measures to rein in debts and deficits are biting.

In Greece, violent clashes broke out between youths hurling petrol bombs and riot police at a large anti-austerity demonstration in central Athens on Thursday, where one demonstrator died of a heart attack.

European Parliament President Martin Schulz warned of the "extremism and radicalism" that can go hand in hand with "the explosive desperation" felt amid dim job prospects and crumbling social infrastructures.

European Commission President Jose Manuel Barroso said more had to be done to stimulate employment and growth.

"We need to balance the important efforts made in terms of sound public finances with the right measures to have growth-enhancing policies," he said.

Source: Copyright 2012 dpa Deutsche Presse-Agentur GmbH