EU reaches compromise on banking supervision

European Union leaders have announced they had 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.

A legislative framework is to be in place by 1 January next year, with the body starting work later in 2013.

The European Central Bank-led mechanism will have the power to intervene in any bank within the eurozone.

At the moment, money to help put banks has to go through a 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 put the brakes on the plan, insisting that creating the supervisor should be done slowly and that “quality must come before speed”.

The compromise included something for both – all 6,000 banks will be included, 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 has shaking the European Union to its roots.

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 bandied about for months – will help keep Europe from repeating past mistakes by stopping governments from overspending and needing expensive bailouts.

But some countries, like France, are wary of handing control over their finances to unelected officials in a foreign capital.

On arrival Thursday, Hollande – increasingly the counterpoint to Germany’s weight in the EU – brushed off the suggestion as simply not on the table at this summit.

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 toward 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 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.