European Union leaders gave an enthusiastic thumbs-up Thursday to a new mechanism agreed on to handle ailing banks, but analysts likened it to a band aid that falls short of what is needed to stabilize the bloc’s financial system, reports The Washington Post.
French President François Hollande said the new centralized institution for saving or shutting down troubled banks across the 17-nation eurozone will help preventing new financial crises and spare governments from having to save failing banks.
“Now the European taxpayer, the French taxpayer won’t have to pay anything if there were another financial crisis,” said Hollande at a summit of the European Union’s 28 leaders in Brussels. Italy’s Prime Minister Enrico Letta seconded the new institution is “certainly be a big step forward.”
The heads of state and government were expected to broadly endorse the finance ministers’ agreement and discuss how to deepen the bloc’s economic integration.
But analysts were much less impressed, pointing to the new institution’s cumbersome decision-making structure and lack of readily available joint funds.
“This compromise ... is an inelegant step in the right direction,” said Daniel Gros of the Centre for European Policy Studies. “It leaves as many problems unresolved as it addresses.”
Following months of haggling, the EU’s finance ministers late Wednesday reached a deal on the technical details for the agency dealing with failing banks, establishing a final element of the 17-nation eurozone’s planned financial market overhaul. That so-called banking union is the most ambitious step in integrating Europe’s economy since the adoption of the common currency.
One of the reasons why Europe got into such financial trouble was that countries like Ireland or Spain had to step in to save their banks when the financial crises hit, eventually forcing the governments into seeking a bailout themselves.
German Chancellor Angela Merkel said after fortifying the governance of the eurozone’s financial system the next and urgent step must be the introduction of “more coordinated economic policies.”
Merkel is pushing for legally binding contracts committing eurozone nations to carry out agreed policies and reforms which would be supervised by the EU, with the incentive of offering countries some unspecified financial assistance in return.
“I am deeply convinced that this is important for the eurozone’s acceptance in the long run,” she insisted.
Many countries, however, loath giving up yet more sovereignty to Brussels or being bossed around by the bloc’s most powerful members such as Germany and France. Leaders agreed to postpone a decision on the issue until next October.
Earlier this year an agreement was reached to create a joint supervisor to police the health of the eurozone’s biggest banks.
The new institution, the so-called single resolution mechanism, will be advised by the joint banking supervisor and have the power to shut down or restructure banks across Europe. It will have a fund at its disposal that is set to swell to 55 billion euros ($76 billion) over ten years as banks will pay a mandatory levy. Before any of its money will be used, however, a bank’s creditors, including holders of large deposits, will be forced to take losses.
Read more of this Reuters report published by The Washington Post.