European Union leaders have agreed plans to complete the European banking union by January 2014, after the general elections in Germany. The concession was made to Angela Merkel who argued for "quality" over "speed" in putting in place the new supervisory system.
After a night of discussions, EU leaders made some advancement towards establishing a single banking supervisor for the eurozone as the first of the three pillars of the banking union, agreeing it would start phasing-in as of next year and become operational “probably” in the course of 2013.
The agreement, announced in Brussels at 4 a.m. after 10 hours of talks, confirmed the objective of agreeing the legal framework by 1 January 2013.
"Once this is agreed, the single supervisory mechanism [SSM] could probably be effectively operational in the course of 2013," said European Council President Herman Van Rompuy.
"I can't give you a precise date," he conceded when pushed during an early-hours press conference. Finance ministers, next scheduled to meet on 12 November, would take up the issue, he said.
"Work on the operational implementation will take place in the course of 2013," according to a summit statement.
Day-to-day oversight delegated to national bodies
French and EU officials said all 6,000 banks in the single currency area would gradually come under the supervision of the European Central Bank by 2014, starting with banks receiving state aid, then large cross-border institutions. Most day-to-day oversight would be delegated to national bodies.
The agreement appeared to be a defeat for German Finance Minister Wolfgang Schäuble’s efforts to delay and limit the scope of European banking supervision.
Germany has been reluctant to see its politically sensitive savings and cooperative banks (Sparkassen) come under outside supervision.
Creating an effective banking union, for which this deal was a first step, is regarded by the International Monetary Fund and market economists as a key component in overcoming the eurozone's three-year-old debt crisis.
The basic idea remains that in future, struggling banks in debt-wracked countries such as Spain could be recapitalised directly from EU bailout funds. But Merkel insisted – and obtained – that no recapitalisation would take place until the system is fully in place, probably after the September 2013 general elections in Germany.
Asked if Spain will be able to tap funds from the European Stability Mechanism (ESM), the new EU bailout organisation established last month, French President François Hollande said this would not be required, adding that Spain has not yet requested any money. The agreement from the June summit offers Spain funds from the European Financial Stability Mechanism, the ESM's predecessor.
On the other two pillars of the banking union – bank recovery and resolution, and deposit guarantees schemes – the leaders note the Commission’s intention to propose a single resolution mechanism for member states participating in the SSM, once its proposals for a recovery and resolution directive have been adopted.
The conclusions also speak of the need for “equitable treatment and representation of both euro and non-euro area members” in the SSM. But it remains unclear what kind of representation countries outside the eurozone such as Poland could have, as the ECB is answerable only to eurozone members.
Tensions in the Franco-German couple
The agreement could be seen both as a step forward, and as an illustration of tensions in the Franco-German couple.
Merkel arrived in Brussels with a broader agenda, including controversial proposals to introduce a new super-commissioner with powers to oversee the national budgets of eurozone countries.
In a widely noticed interview before the summit, Hollande rejected the idea, saying that if necessary, EU leaders could hold monthly summits instead.
Hollande and Belgian Prime Minister Elio Di Rupo strongly rejected discussing such new ideas before the banking union is completed.
“Before discussing the next stages, we must finish the banking union stage,” Hollande insisted on two occasions, speaking to the press before the summit. Di Rupo repeated his words.
Socialist leaders 'more united than ever' against Merkel
It appears that leaders affiliated to the party of European Socialists (PES) coordinated their summit tactics during a lunch ahead of the summit. The lunch was also attended by prime ministers Helle Thorning-Schmidt of Denmark, Werner Faymann of Austria and Robert Fico of Slovakia.
Hollande apparently broke with presidential tradition by attending the party meeting. Later, European Parliament President Martin Schulz, who also participated, said that since Merkel attended summits of the European People's Party, Hollande would do the same.
Hannes Swoboda, leader of the group of Socialists and Democrats in the European Parliament, told EURACTIV that PES was “more united than ever” against Merkel.
“I think Madame Merkel and Mr Schäuble are producing every day a new idea of a super-commissioner here and the possibility to impose on member states their austerity policies – every day with these new, let’s say, defensive ways. Not to have a clear commitment on the banking union and other issues is annoying a lot of the Social-Democrat leaders, and so we have a very united position,” he stated.