Banking union blueprints have already been put forward by the European Commission, and there is widespread agreement that a new level of pan-European supervision of the banks could be vested in the European Central Bank (ECB) in Frankfurt.
The blueprint sets out the need for a single European banking supervisor, a common EU deposit-guarantee scheme and a single bank-resolution fund to wind down the region's bad banks.
EU officials believe that could be achieved in a year, although Berlin wants to see much more progress towards fiscal integration first, something that would require much longer due to the need to change the European Union treaty to achieve it.
A common debt guarantee scheme is also included in the blueprint. Under Article 127 (6) of the European Treaty, the Council, acting unanimously, can use a special legislative procedure to grant the ECB special supervisory powers relating to “the prudential supervision of credit institutions and other financial institutions”.
Using the ECB as the vehicle for bank supervision would require no treaty change, making this an attractive option for a nascent banking union.
Leaders meeting 28-29 June are likely to send a brief to European Council President Herman Van Rompuy to draw up a firm plan, which EU leaders can then agree before the end of the year, with the intention of putting the banking union into effect as early as next spring.
Fiscal union more complex
A roadmap for a more political fiscal union is altogether more complicated.
Van Rompuy’s pre-summit memorandum refers in broad terms to the potential for tighter fiscal integration, and also dips into more taboo areas, such as common debt-sharing, to which Germany against remains strongly opposed.
These fiscal measures would almost certainly require treaty changes, and in many cases trigger referendums within member states, with unpredictable results, increasing the plan's chances of being rejected.
Germany has made clear, however, that there will be no latitude on debt-sharing without clear progress on budget discipline, setting the political complications of rolling out such a roadmap against the expectations of financial markets eager to see Berlin loosen the purse strings of the ECB and the EU's bailout fund, the European Stability Mechanism.
Fiscal union measures are likely to be the subject of a more ambitious roadmap than banking union, looking perhaps towards a convention for treaty change to be established in the medium to long term.
… but banking union complex too
If a banking union appears to offer a quicker option than full-fledged economic and fiscal union, the plan could still pose difficult decisions when the first clear blueprint emerges at the next EU summit in October.
A fundamental question for instance is how many countries will be willing to join and what happens to those who don't, especially if they are members of the eurozone.
In order to sideline the most reticent countries, EU leaders might be tempted to launch banking union plans under the so-called "enhanced co-operation" procedure, which allows smaller groups of countries to move forward without the others.
The procedure would allow non-eurozone countries to opt in, but where would that leave those states deciding to remain outside?
The Czech Republic, Denmark, Hungary, Sweden and the UK – all non-eurozone members – have indicated they will not join the banking or fiscal union. The remaining non-eurozone countries are favourable to joining, and of those that currently have decided to stand on the sidelines, could join later.
Replaying divisions over fiscal compact?
If EU leaders decided to proceed with the treaty change, the whole situation could result in a replay of the fiscal compact treaty, which was vetoed by the UK, putting the country's relationship with the EU under renewed pressure.
Thorny issues remain also within the eurozone. These extend beyond the much publicised squabbling between a “Franco-Italian” axis clamouring for quick debt mutualisation, and German Chancellor Angela Merkel, depicted as a cruel parent refusing to open the sweetshop for the rest.
On the banking union, there are questions of degree and scope that also strike at the differences between France and Germany. Will France, for example, accept that all of its (larger) banks should be subject to scrutiny, whilst Germany enjoys a carve-out for its smaller Landesbanken?