European leaders agreed on a timetable for the establishment of a single banking supervisor under the roof of the ECB. By January 1, 2013, a legislative framework is to be agreed, but not passed. The supervisory regime will become effectively operational in the course of next year. This allows time to clarify the necessary details. It is essential that there is a clear separation between the ECB’s monetary responsibilities and its supervision functions. Banking supervision is part of the planned banking union for the euro area and a prerequisite for the direct recapitalization of distressed banks by the recently launched ESM. As a result, Spanish banks will not receive direct financial aid from the ESM for the time being. The criteria for a recapitalization, which would break the vicious circle between banking crisis and rising public-sector debt, now need to be thrashed out by the Eurogroup as swiftly as possible.
Like the Interim Report produced by the Group of Four (the presidents of the European Council, the European Commission, the ECB and the Eurogroup) the summit’s conclusions are rather vague on many aspects. Details on the two additional elements of a banking union, the harmonization of individual deposit guarantee schemes and the creation of a resolution mechanism, still have to be worked out.
And there is still disagreement on the size, funding and allocation of a separate budget planned for the 17 eurozone countries in the long term. The relationship of this so-called fiscal capacity with the main EU budget also remains unclear.
The euro budget should not be established as a permanent redistrubition
mechanism in addition to the ESM. The aim should be to provide limited financial support for reforms geared to boosting competitiveness.
The agreement on a joint banking supervisory regime is a positive signal that further steps towards integration will follow. A detailed timetable with target dates on EU reform is to be drawn up as early as the next EU summit in December.