European Union leaders have agreed to create a single supervisor for banks in countries that use the euro, and said it would “probably”‘ become operational sometime next year.
The deal, reached at a summit of EU leaders in Brussels on Friday, represents a shaky compromise between the Germans and French, who had been tussling over how to shore up the eurozone’s banking system.
France has been pushing to get all 6,000 banks in the 17 countries under the supervision of one European body by the end of this year. Leaders agreed in June that, once a supervisor is in place, struggling financial institutions would be able to tap Europe’s emergency bailout fund, the European Stability Mechanism, directly.
At the moment, money to help banks has to go through the country’s government – placing more strain on state finances.
In Ireland’s case, the government’s attempts to rescue failing banks forced it into a bailout. Some fear Spain could face that fate, too.
But Germany’s Chancellor Angela Merkel, wary of using taxpayers’ money to prop up other countries’ banks, tried to stop the plan, insisting that creating the supervisor should be done slowly and that “quality must come before speed”.
‘Worst is over’
The agreement includes all 6,000 banks, as France had wanted. But there is no firm deadline for the single supervisor to be up and running – other than to say that the “objective'” is to finish the legal framework by January 1, and that work on its operational implementation “will take place during the course of 2013”.
Herman Van Rompuy, European Council president, said the single supervisor would “probably” be up and running next year.
“It is not because you vote on a law that you have the whole logistic framework in place the day after,” Van Rompuy said.
Despite the lack of a deadline, Francois Hollande, French President hailed the agreement. “The worst is over,” he said, referring to the crisis that the European Union experienced.
However, there are still more issues under debate at the summit, which runs until Friday.
Merkel is pushing a proposal for the European Union’s monetary affairs commissioner to become an enforcer of the bloc’s budget rules – including the power to refuse member countries’ proposed spending and tax plans and send them back for changes.
Germany hopes that having a “budget czar” – a move that’s been debated about for months – will help keep Europe from repeating past mistakes by stopping governments from overspending and needing expensive bailouts.
But some countries, such as France, are wary of handing control over their finances to unelected officials in a foreign capital.
On arrival on Thursday, Hollande brushed off the suggestion as simply not on the table at this summit.
Al Jazeera’s Nick Spicer, reporting from Brussels, said ahead of the talks: “The body language of Merkel and [French President Francois] Hollande did not bode well… Merkel does not want to do anything in her election year in 2013.”
With unemployment in the region at a record 10.5 percent, and growth grinding to a halt around the continent, the back-and-forth is beginning to frustrate some European officials. Jose Manuel Barroso, who is president of the EU’s executive arm, the European Commission, criticised the heel-dragging ahead of the meeting.
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With no relief in sight for Spain, the question of whether it will ask for a bailout itself still looms.
The government in Madrid said this week that it would decide in the coming weeks, although it is still hoping it can avoid asking for any kind of aid.
“It would be helpful … if Spain asked for ESM (European Stability Mechanism) aid,” said Van Rompuy.
“But it is up to Spain to make up its mind.”
Leaders also praised the progress it said Greece had made towards reforming its economy and balancing its budget, though, without a new report by international lenders, no decision could be taken on badly needed continued aid for the country.
On Thursday, rioters in Greece pelted police with Molotov cocktails and chunks of marble in protest against the stringent budget cuts the country has had to implement in order to secure its rescue loans.
Greece’s bailout creditors – the EU, the International Monetary Fund and the European Central Bank – have been engaged in tough negotiations in recent weeks over more budget cuts.