European governments yesterday reached a landmark deal on new rules to supervise some 200 banks based in the eurozone in a bid to boost confidence in the sector.
The agreement to hand the European Central Bank (ECB) fresh powers as a single supervisor was struck after marathon overnight talks by European Union (EU) finance ministers.
Under the deal, the ECB would directly regulate up to 200 banks – mostly major cross-border lenders and state-aided institutions domiciled in the eurozone – with the power to delve into all 6,000 banks in case of problems.
The move is seen as an important first step towards a banking union across the single-currency zone. The UK has a formal opt-out from joining the euro, and will not be part of the new banking union.
French finance minister Pierre Moscovici said: “It’s very good news that shows that, step-by-step, the eurozone and the EU are coming out of the crisis.”
ECB president Mario Draghi hailed the deal on banking supervision as an “important step” towards a stable economic and monetary union.
German chancellor Angela Merkel also praised the agreement, saying it would boost trust in the eurozone.
Matthew Fell, the CBI’s director for competitive markets, said that, while the agreement was a positive development, it was also vital that non-eurozone countries such as the UK retain a say in how the single market operates. “A single market in financial services is critical and this agreement has gone some way to allaying fears of it becoming fractured,” he said.
Lord Harrison, chairman of the House of Lords EU sub-committee on economic and financial affairs, also welcomed progress but cautioned that the “devil is in the detail”. “The implications of these important first steps towards banking union could be momentous for the UK, even though we will not be participating,” he said.
The immediate priority now is to finalise the legal framework for banking union and get the backing of the European Parliament. Then the ECB must hire staff and decide how to carry out its mandate. It is not expected to be fully operational before March 2014.
Completing such a complex process would be one of the EU’s biggest achievements since the region’s debt crisis first erupted three years ago.
The hope is that it will go some way towards severing the so-called “doom loop” between indebted banks and shaky governments that has hit Ireland and Spain particularly hard.
Creating a full banking union, with powers to wind down failed banks and guarantee deposits across the eurozone, is likely to take several years.
It forms just part of the bloc’s masterplan to bolster the architecture of the eurozone and prevent a repeat of the crisis that has threatened to tear the single currency project apart.
In addition to getting agreement on the first stage of a banking union, finance ministers also approved the release of nearly €50 billion (£40.5bn) in fresh aid for Greece, averting a catastrophic default and the risk of a so-called “Grexit”.
The deal secures Greece’s survival in the eurozone after months of doubt and political turmoil, during which Athens had repeatedly missed fiscal targets agreed with the EU and the International Monetary Fund, and stalled structural economic reforms.