German Chancellor Angela Merkel suggested yesterday (4 June) that the EU should consider putting its largest banks under Brussels' direct supervision, paving the way to a more centralised oversight of the region's financial sector.
The proposal to create a Europe-wide authority overseeing and ultimately guaranteeing the banks' stability, which echoes a similar call from European Central Bank President Mario Draghi last week, comes as EU leaders are trying to rebuild confidence in Europe's battered banking sector.
But rich countries such as Germany have been lukewarm about the idea because of fears it could eventually lead to them bailing out other countries' banks.
Ahead of a meeting with European Commission President, José Manuel Barroso, Merkel told reporters that the pair "will also talk about to what extent we have to put systemically (important) banks under a specific European oversight."
European institutions needed more powers otherwise monetary union would not function, the Chancellor said in Berlin, echoing also proposals made by Barroso last week.
The idea of a eurozone banking union with a bail-out potential has been making headway in recent days, as Spain's banking crisis has deepened.
The Commission had already proposed a single deposit guarantee scheme years ago, Barroso explained, but it had been unanimously rejected by member states. This time around though, a number of countries were pressing for such a scheme.
"The world wants to know how we conceive the political union that will accompany monetary union, and we have to provide an answer to this question in the foreseeable future, "Merkel added.
Barroso maintained that a "banking union with more integrated financial supervision and deposit guarantees" was the necessary step to complete the monetary union with an economic union. Europeans must do "whatever is necessary to ensure the stability of our currency," he added.
European Central Bank President Mario Draghi last week warned the ECB cannot "fill the vacuum of the lack of action by national governments," calling the monetary union's current structure "unsustainable unless further steps are taken."
"Some elements of this banking union would be more integrated financial supervision and also more integrated deposit guarantees. It is important to have this long-term vision about more Europe," he said.
Merkel and Barroso were meeting to prepare an EU summit at the end of June.