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German Chancellor Angela Merkel cast doubt on whether that timetable could be respected, saying the creation of a European authority with such powers would require a change to the EU treaty - a lengthy and politically risky process. EU finance ministers agreed on an intermediate step towards what is known as European banking union, which involves tighter oversight of banks and coordinated resolution of any problems. Under the deal, investors and wealthy savers will share the costs of future bank failures before taxpayers.
The European Commission, the EU's executive arm, is to propose how to create such a central agency, called the Single Resolution Mechanism (SRM), in July, although some officials indicate that it could be delayed beyond that date. Merkel insisted that setting up a central authority with powers to close down banks in eurozone countries would require changing the EU's treaty, or else it could be challenged in Germany's constitutional court. The European Commission believes no treaty change is needed and has floated the idea that it could itself take on the role of the resolution authority, to avoid the need to change laws for the creation of a completely new body.
In an indication of acute political sensitivity on the issue, EU officials said Germany tried to have the term "banking union" removed from the final summit statement altogether. "In this morning's draft conclusions the term banking union had disappeared and was replaced with more vague terms. We re-proposed our commitment towards a banking union", Italian Prime Minister Enrico Letta told a press conference after the summit.
But there will be little progress on the SRM until after the September parliamentary elections in Germany, which wants to avoid discussions that could involve any form of financial support for institutions in other countries. The SRM is to complement the work of the European Central Bank as the Single Supervisory Mechanism (SSM), responsible for looking after all eurozone banks.
"A fully effective SSM requires a Single Resolution Mechanism (SRM) for banks covered by the SSM. The European Council looks forward to the Commission's proposal establishing an SRM with a view to reaching agreement in the Council by the end of the year so that it can be adopted before the end of the current parliamentary term", the leaders said, using the careful legal language employed in summit declarations.