Commentary: EU takes a substantial step in Banking Union
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E-mail Xinhua, December 15, 2012
Though some details still remain to be finalized, the most substantial and encouraging news for the European markets was no doubt the single supervisory mechanism (SSM). ??ECOFIN??
The deal, which Britain and Sweden will not take part in, will mean the European Central Bank would be directly supervising some 200 of the biggest banks out of the estimated 6,000 eurozone lenders.
Just two weeks ago, it seemed almost unlikely that such a deal could be reached within such short time, given the substantial amount of disagreements over the issue with Germany and France at odds over the functions of ECB in the mechanism and criteria of banks under supervision.
But Berlin and Paris quickly worked out a consensus, highlighting determinations of the EU member states to set aside national interests and overcome differences.
"This clearly shows the Union's ability to take timely and decisive action. It is our way, our European way of working," European President Herman Van Rompuy said during a press conference of European Council.
The SSM will eventually give the "green light" for the European Stability Mechanism (ESM), the eurozone's permanent defence fund, to recapitalize struggling banks directly, bypassing national governments so as not to add to their debt burdens.
But since such an action needs a "double majority" voting, both by the ECB and the European Banking Authority (EBA), a direct recapitalization may take more time and efforts, while some non-eurozone member states including Britain may also influence decisions.
Nevertheless, the agreements drew applaud throughout the European Council meetings Thursday and Friday. Even British Prime Minister David Cameron expressed confidence in the deal.
"What you'll see is a growth of this multi-faceted Europe and I don't think it's something we should be frightened of at all, I think we should be very confident." Cameron said.
Upbeat about result of the ECOFIN meeting, the European Council agreed upon a time-bound roadmap of building a resolution mechanism and coordinating deposit guarantees, the other two pillars of the Baning Union. Given EU's timely delivery of SSM, there is hope that these targets might be achieved as well.
But some uncertainties remain unsolved and details to be finalized on issues such as how would the ECB separate its supervision functions from its role as the monetary policy maker. The ECB may set up a commission to carry implement supervision, which was under the jurisdiction of the Governing Council of the ECB. But the council may veto the commission's decisions when its interest of supervision and monetary policy are conflicting each other.
Another source uncertainty is relations between the ECB, national bank supervision bodies and EBA. The deal gives EBA some power through a "double majority" voting, so a majority of "outs" might be able to stop the "ins" from forcing key decisions. Endit
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