By John O'Donnell and Robin Emmott
BRUSSELS - The European Union reached a landmark deal on Thursday to make the European Central Bank the bloc's top banking supervisor, giving EU leaders greater confidence that they are gaining the upper hand over the euro zone's debt crisis.
EU finance ministers forged a deal on the single supervisor
in the early hours of Thursday after marathon talks. Leaders
will give their stamp of approval at a summit starting later in
the day, their last of 2012, and also discuss closer fiscal ties
for their troubled currency area.
After a hectic year of crisis management, during which
Greece had a close brush with the euro zone exit, getting an
agreement on the first stage of a banking union is a victory for
the EU and represents a bold step towards pooling sovereignty.
“The importance of the deal cannot be assessed too highly,”
German Chancellor Angela Merkel, Europe’s most powerful leader,
told parliament in Berlin before heading to Brussels. “We
succeeded in securing Germany’s key demands.”
But there will be no time to relax. 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.
With Silvio Berlusconi vowing to contest an Italian election
early next year, a full bailout of Spain still on the cards and
a German general election in September casting a long shadow,
2013 promises to be the EU’s fourth turbulent year in a row, and
that’s without mentioning Greece, Ireland or Portugal.
The immediate priority is to finalise the legal framework
for banking union and get the backing of the European
Parliament. Then the ECB must hire staff and decide how to carry
out its mandate. It may not start supervision until April at
earliest, and will only be fully operational in March 2014.
Officials said the ECB would regulate some 150 to 200 banks
directly, mostly major cross-border systemic lenders and state
aided institutions, with the power to delve into all 6,000 banks
in case of problems.
Completing such a complex process would be one of the EU’s
biggest achievements since the region’s debt crisis erupted in
early 2010, and might go some way to severing the so-called doom
loop between indebted banks and shaky governments.
But it would only be the first step in building a banking
union, that also entails creating a resolution authority and
fund to wind up failed banks and coordinating deposit guarantee
schemes across the euro zone to avoid bank runs.
The exercise is likely to take several years and officials
see it is just part of a masterplan to bolster the architecture
of the euro zone and prevent any repeat of a crisis that nearly
tore 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.
“I feel that this political will is still present, otherwise
I would not be here anymore because I would have failed during
the euro zone crisis,” Herman Van Rompuy, the president of the
European Council who chairs EU summits, said this week ahead of
the award of the Nobel peace prize to the EU.
“The facts show that in this global world, in order to
preserve our interests and promote our values, we need more
European integration.”
MINEFIELD AHEAD
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 presidents of the European Commission,
the Eurogroup and the European Central Bank have put forward a
bold blueprint for closer fiscal, economic and political
integration in the euro zone alongside the banking union.
But Merkel has lowered expectations for progress on that
agenda at the summit, telling lawmakers that EU leaders should
focus on steps that can be achieved within six months, notably
to improve economic competitiveness.
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.
Binding the euro zone more tightly together to underpin the
currency union is driving some non-euro states such as Britain
and Sweden to question their relationship with Europe, while
others such as Poland are keen to stay close to the core.
The banking union – which neither Britain nor Sweden will
join, even if they reluctantly let the ECB take responsibility
for oversight – is just the first obstacle in a minefield ahead.
Asked about banking union on Wednesday, Sweden’s finance
minister said approval of it would mark a “sad day for Europe”.
“There is a move now towards euro-banks, euro-taxes,
euro-transfers, euro-commission,” Anders Borg told reporters.
“We think those are steps in the wrong direction. It might
be very popular among the Eurocrats, but I think there are very
few Europeans actually wanting these developments.”
While the debt crisis continues to weigh heavily on Europe’s
economy, leaders will have to navigate the pitfalls of electoral
politics in Italy, Germany, Cyprus and elsewhere.
Italy is a particular concern if the next government rows
back on any of the economic reforms put in place by technocrat
Prime Minister Mario Monti, whose time in office has helped
stabilise financial markets and stave off the crisis.
And after banking union, leaders must tackle the intricacies
of closer fiscal integration, including proposals for setting up
a separate budget known as a ‘fiscal capacity’ among the euro
zone states — a fund to help tackle one-off economic shocks.
That will involve more pooling of sovereignty and greater
risk sharing, and may not be possible unless the EU’s guiding
treaty is opened up for amendments, a long and cumbersome
process that no one wants until much further down the road.
Meanwhile, the original sovereign-debt problems in Greece
will not be fully resolved, while Ireland and Portugal face a
struggle to emerge from their bailout programmes and regain
market access by the end of 2013.
Greece’s successful buying back of its own debt will help
reduce its debt burden and will ensure that the next slice of
emergency funds is released by the euro zone and International
Monetary Fund, but there is a growing acknowledgement that
Athens will need debt forgiveness in the years ahead.
In June and July, euro zone leaders came close to letting
Greece go from the currency bloc. They resolved to keep it in,
doing whatever it would take to get it back on its feet. Having
taken that decision, they now have to bear the costs, however
large and uncomfortable they may be.
