EU Seals Deal on Banks Watchdog, Ahead of End-of-Year Summit
The European Union agreed early Thursday to create a bank supervisor to oversee lenders across the eurozone, following marathon talks which ended hours before the year's final EU summit.
The summit later on Thursday will aim to end the third grueling year of the debt crisis on a high note with a Christmas gift for Greece, by officially releasing the next tranche of international aid.
Under the scheme approved by EU finance ministers overnight, a new single supervisor for eurozone banks will allow banks to be recapitalized directly without adding to government debt loads.
The European Central Bank (ECB) is to manage the system in tandem with the EU-wide European Banking Authority and national supervisors.
The "overall aim is to restore confidence in the banking sector," said the meeting's chair, Cypriot Finance Minister Vassos Shiarly as he announced the deal to the press in the early morning hours, comparing the deal to a "Christmas present for the whole of Europe."
From March 2014, banks with assets worth more than 30 billion euros will be covered directly, although the ECB will be able to call up other smaller lenders over which it has liquidity fears.
EU Financial Markets Commissioner Michel Barnier said the new supervision deal was a "first stage" that would over the course of 2013 be followed up by legislative proposals for a fund to wind up banks that can't be fixed and also a cross-border deposit guarantee.
The "historic" agreement came after 14 hours of talks and less than 12 hours ahead of the two-day summit of EU leaders who ordered the marathon preparations.
Britain, which will not be joining the new system, wanted special voting rights that would protect the City of London global financial center, and Chancellor of the Exchequer George Osborne said it was "a good outcome for the entire European Union," but that "the countries that weren't going to join the banking union, like Britain, were protected."
The so-called Single Supervisory Mechanism (SSM) will ultimately allow eurozone rescue funds to directly recapitalize struggling banks such as those which failed in Greece and Spain, where a burst property bubble left a string of bad debts.
Barnier told a press conference that the European Central Bank (ECB), which lies at the center of the new arrangements, would directly supervise some 200 of the biggest of the estimated 6,000 eurozone lenders under the scheme.
Fresh from the European Union's much-discussed Nobel Peace Prize, the summit later in the day is set to turn back on the tap and begin delivering some 40 billion euros ($50 billion) in loans to Greece.
The release of the funds, after months of delay, comes in return for harsh economic austerity programs that have generated a flood of protests -- and chilling talk of Greece's exit from the eurozone.
But economic reform efforts across Europe, while whipping up social unrest, have eased market pressure on the euro single currency. And the biggest impact was a vow by the European Central Bank (ECB) to offer almost unlimited guarantees to prevent bigger countries falling into similar trouble.
The crisis has seen debt bounce around between government and bank books, and the foundation stone for a banking union delivers a fresh step towards closer cross-border integration in future.
"We will come out of this together, and stronger," said EU Council President and summit chair Herman Van Rompuy of the combined moves to beat the economic doom and gloom at this week's Nobel awards ceremony in non-EU star economy Norway.
Yet recession is back, now eating into the euro economic heart of Germany after piling on unemployment across Spain where one out of two youths currently cannot find a job.
Political and economic uncertainty meanwhile were back in Italy, where Prime Minister Mario Monti, credited with restoring the country's international credibility and pulling the economy back from the brink, has said he would step down in the coming days and former premier Silvio Berlusconi launched a comeback bid.
Experts also warn that Socialist-led France will increasingly struggle to make common cause with Germany, the latter turning inwards ahead of potentially pivotal elections in the fall, and that non-euro Britain's future course looks increasingly unclear.
Against this backdrop, the long, laborious slog towards fixing the flaws in the euro's design appears to have lost, not gained momentum over the past six months.
Analysts speak of fresh fears in Berlin of complacency among euro partners.
Awaiting the leaders' final green light later on Thursday, Germany and France signaled at the all-night negotiating session on the banks that Greece had passed a critical test with a "buyback" offer to slash its debt.
The International Monetary Fund and the eurozone would then release 43.7 billion euros in rescue loans in four installments to enable Greece to avoid bankruptcy,
Much of these monies are to recapitalize Greek banks that have written off large chunks of paper holdings, and leaders are also to consider planning for a similar cry for help -- albeit on a lesser financial level -- from Cyprus.