19 June 2013

FT: EU struggles to unlink banks from states as summit looms

As banking union has moved from a concept to the nitty-gritty of political negotiation, a complete severing of the link between banks and national governments - i.e. making bank oversight and rescues the responsibility of the EU rather than its Member States - has proven harder than many anticipated.

That “vicious circle”, as EU summiteers termed it a year ago, lay at the heart of the eurozone crisis, with Ireland, Spain, Cyprus and potentially Slovenia forced to seek EU rescue aid when they could not afford on their own to bail out banks that went wild in the cheap credit years before the crisis hit.

At the heart of the disagreement is one vision, shared by EU institutions and a France-led group of Member States, of a quick, clean break with strong, sweeping authorities given to Brussels and Frankfurt, versus a German-led group that is insisting that liability for cleaning up banks must sit with those responsible for creating the mess in the first place.

Publicly, officials insist the delays are due to the logistical difficulties of turning the European Central Bank into the single supervisor of all eurozone financial institutions and the technical complexities of giving the eurozone’s €500 billion bailout fund, the European Stability Mechanism, the power to bail out banks directly.

But privately, other officials acknowledge much of the delay can be laid at the feet of complacency that has settled in as financial markets have cooled, as well as the gradual move into the season of the German election campaign, which could prevent any major decisions until after September’s vote.

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