Brussels, 29/06/2012 (Agence Europe) - European heads of state decided on Friday 29 June 2012 to make progress on Banking Union by transferring power to supervise banks in the eurozone to the ECB before the end of the year without damaging the Single Market. This is the first step towards boosting Economic and Monetary Union (EMU) which the eurozone hopes will deal in part with the debt crisis. The details of exactly how EMU is to be extended will be set out later this year.
The president of the European Commission, José Manuel Durão Barroso, said the decisions are fundamental and amounted to renewed commitment by eurozone nations to the euro's irreversibility. The 17 eurozone nations understand that integrated bank supervision is required in the eurozone, he said, promising that the European Commission will work hard to draw up draft legislation, possibly by October, so that the ECB can play a full role as the eurozone's financial supervisor.
The decision to make the ECB responsible for supervising banks in the eurozone was taken on Thursday night, rather than Friday as scheduled, and did not take long because it was a precondition for allowing the eurozone bailout funds (EFSF and ESM) to directly recapitalise banks (see separate article), which Spain had been demanding to ensure that the €100 bn bailout of its banks promised by Eurogroup did not make its debt situation even worse. The German chancellor, Angela Merkel, said Germany could go along with the EMS recapitalising banks as long as a reliable surveillance mechanism is set up. She said she had huge confidence in the ECB, because it is independent and wants to be surrounded by healthy banks.
The European summit examined a report by the president of the European Council, Herman Van Rompuy, on boosting EMU. The report focuses on the eurozone and takes a three-pronged approach - Banking Union, including bank supervision at EU level, Budget Union and Economic Union (see EUROPE 10642). All three will involve the transfer of powers to EU level and willl necessarily require greater legitimacy and democratic responsibility at EU level.
Van Rompuy said everyone shared the same analysis and agreed that EMU can only work properly if all countries have affordable budget policies. He said that if people want other countries to invest in their sovereign debt, then they have to know what the eurozone's going to look like in ten years time. The European summit's conclusions document talks about an 'open' exchange of views in which 'various views were expressed. Although not agreeing on the detail, the EU27 did agree on the working method. Van Rompuy will publish an interim report in October ahead of detailed proposals for the European Summit in December.
The proposals will consider what can be achieved without changing the treaties, and what will require a treaty change. The Commission says that no changes in the treaty will be needed for Banking Union, but macroeconomic and budget integration will take longer.
Sequence. The sequence of events to boost EMU, particularly on budget issues, will be the subject of bitter negotiations, particularly if there is no let-up in the pressure on eurozone from the financial markets, partiucularly pressure on countries that are too big to fail, like Italy and Spain, when it comes to rolling over their debt. Germany recommends a political union and wants greater controls at EU level before considering greater solidarity. Historically more in favour of a governmental EU, France says that integration must go hand-in-hand with solidarity. On Thursday evening, the French president, Francois Hollande, said he thought integraton was needed as long as solidarity is possible, in other words that on each step of the way to integration, there should be a solidarity instrument. Banking Union should mean the supervision of banks, but also savings guarantees and the capacity to solve crises, he said, pointing out that Budget Union was budget controls, but also debt pooling and the creation of an EU treasury. Economic Union is coordination of economic policies, growth and competitiveness at EU level. He said sovereignty was not being transferred to Brussels simply to get rid of it, but rather because extra powers were available at EU level. In answer to a reporter who said the ideas about EMU were rather vague, Hollande said that the reporter had been misinformed if he had been expecting a decision about a federal Europe.
Unity in diversity? The other tricky aspect of greater integration is striking a balance between meausres for the eurozone alone and preserving the Single Market at EU27 level, particularly for the financial industry.
British Prime Minister David Cameron said it was not for the British taxpayer to guarantee Spanish or Italian banks and it was not for the ECB to regulate British banks because the Bank of England has supervisory powers (most of Europe's financial industry is located in the City of London). Cameron said his coutnry would not be part of a Banking Union because at the heart of Banking Union were two things that the UK didn't want, namely a common savings guarantee system and single supervision. This has to be done by the eurozone, he added. He promised to defend the integrity of the Single Market tooth and nail, a concern that was included in the summit conclusions document. Poland will be closely watching the bank integration talks. The Polish prime minister, Donald Tusk, said this was a very big programme covering the eurozone for the moment, but nations remaining outside the eurozone will be participating closely in the debate on Banking Union. He said a badly constructed Banking Union could jeopardise Poland's interests, but a properly constructed Banking Union would be beneficial. (MB avec AN/JK/EL/transl.fl)