A two-day summit of leaders from the European Union's member states ended in Brussels today (19 October) with a political commitment to agree on a supervisory authority for eurozone banks before the end of the year.
EU leaders had agreed late last night to create the legal framework for the supervisor at their summit on 13-14 December.
Finance ministers are now working to flesh out the plans for the supervisor in time for the December summit.
Angela Merkel, Germany's chancellor, warned that “difficult legal questions” remain ahead of the launch of the supervisory authority, which will be part of the European Central Bank.
Merkel said that the main questions concerned the relationship of eurozone banking supervision with non-eurozone banks, the relationship with the European Banking Authority in London, which covers the entire EU, and the differentiation between the way in which the approximately 6,000 banks that fall under the supervisor will be treated.
“Early in 2013 we want to have the legal framework within which we can build up the banking supervisor in the course of the year,” she said. “Only once that has been completed can the supervision begin in order to implement the recapitalisation” of banks. “What we're concerned with here is the right sequencing and hence the credibility.”
Several member states had been pushing for the supervisor to be in place by the end of the year, but Merkel said that this was technically impossible.
“We're already in the second half of October, and there are difficult legal questions that need to be resolved,” she said. “We hope that we will have a solid legal framework in December, and that's already pretty ambitious. Creating a banking supervisory authority cannot be done in two weekends, it takes time. If the ECB manages to be faster, that's fine by me, but it has to function properly.”
In what appeared to be a rebuke of member states that had asked for a faster launch of the supervisor, she said that the summit yesterday and today had succeeded in identifying the open questions that needed answering by December, and in setting a schedule based on the principle of quality before speed.
Merkel said that Herman Van Rompuy, the president of the European Council, was now undertaking consultations with the member states on an “integrated budgetary framework”, or a fiscal capacity, for the eurozone, including a solidarity fund to improve competitiveness.
She said that debt mutualisation, for example, in the form of eurobonds, was “not appropriate” as long as there are separate national budgets. “From our viewpoint this is out of the question,” she said, in a rebuke to François Hollande, France's president. But Merkel also said: “The German chancellor and the president of France will always work together well.”
The issue of when the European Stability Mechanism (ESM), the eurozone's permanent €500 billion rescue fund, can start direct recapitalisations of banks has also not been resolved.
These operations can only begin once the banking supervisor is deemed to be “effective” and there is still no agreement about when this should be.
Officials last night indicated that it would be up to the ECB itself to decide. This is likely to mean that it will be several months into next year at the earliest – a setback for Spain.
Hollande, said: “Does it mean on 1st or 2nd January banks can be recapitalised? No.”
“We need assessments that will allow the supervision to take place.
“It's one thing to organise the supervision, it's another to execute it.”
He added that there was still some disagreement over the scope of the supervisory body.
“For historical reasons, Germany is really paying attention that their regional banks can be supervised by a national supervisor, and not just by a central one,” he said.
Leaders also discussed Van Rompuy's interim report on a blueprint for the future of economic and monetary union but took no firm decisions.