BRUSSELS: EU finance ministers late on Wednesday reached a banking union accord which will hand Brussels unprecedented new powers to prevent failing banks from wrecking the economy, official sources said.
“Today is a momentous day for banking union,” EU Financial Markets Commissioner Michel Barnier said after some 12 hours of tough talks. “We are producing revolutionary changes to Europe’s banking system so that taxpayers will not foot the bill in banking crises, ending an era of massive bailouts,” Barnier said.
Crucially, it will promote “financial stability ... so that banks can lend to the real economy” again, helping produce much-needed growth and jobs, he said.
Ministers formally agreed on what is known as the Single Resolution Mechanism which will close failing banks before they do too much damage.
It forms the banking union along with an already agreed new supervisory regime to be overseen by the European Central Bank.
The last element, establishing a common deposit guarantee system, was put in place on Tuesday following agreement with the European Parliament.
The banking union was drawn up in response to the financial and then debt crises which brought down many banks and nearly drove the eurozone to its knees as governments had to be bailed out after rescuing their lenders.
The new framework means a big pooling of sovereignty and would mark a big step towards EU cross-border authority. All 17 countries — shortly to be 18 — sharing the single currency will be bound to the scheme while other states in the EU have the option of joining.
A key sticking point, especially between France and Germany, has been who will have the final say in deciding to close a bank and how this will be paid for.
For the moment, it appears that Germany has got its way that responsibility remains with national governments, as opposed to France which wanted the European Commission to have a greater say.
The plan also calls for the banks to contribute to a special fund to pay for bank closures, phased in over 10 years, so sparing a call on the cash-strapped taxpayer.
However, this fund is unlikely to be enough in the interim period and there have been tortuous discussions over how it could find additional or “backstop” financing.
Ministers agreed this could come either from the member states or from the eurozone’s own rescue fund, the European Stability Mechanism.
AFP
