Race against time on banking union

The EU’s 27 finance ministers yesterday failed to hammer out a deal and overcome their divisions to agree a banking union deal by the end of the year, seen as a crucial step to solving the debt crisis, explains Público.

According to the Lisbon daily —

The expectation of countries like Portugal, Spain, France and Italy is to ensure that the new surveillance mechanism becomes operational in January 2013, at least for 'systemic' banks [those that can endanger, by contagion, the whole European sector], and will be extended to all 6,000 eurozone banks during the course of the year.

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Despite hours of talks, no agreement was found over the single European bank supervision mechanism, which would be overseen by the European Central Bank. A further meeting is set for December 12. The urgency resides in that –

The […] creation of the new system of supervision as a condition for the European Stability Mechanism [the new euro rescue fund] to be able to directly recapitalise the distressed banks without increasing the public debt of the respective countries.

The compromise proposal that is being discussed

creates a new oversight board within the ECB […] in which all the EU countries that participate in the system will have a seat and the right to vote.

But France and Germany have placed barriers to this new proposal, the Lisbon daily adds –

The hesitations of Berlin have, however, mainly to do with a non assumed reluctance of losing control over the supervision of small regional savings banks (Landesbanken), whose fragility is a poorly kept secret. […] The French fear that banks under the jurisdiction of national supervisors raise suspicions about its solidity and thus lose access to the interbank lending market, crucial to enable them to finance the economy.

In its editorial, Le Monde summed up the case of the banking union as "a battle between the City and Paris" and reminds everyone of both postitions: "The French want to go fast. The Germans intend to take their time. The United Kingdom wants to protect the City. Regulation must be left [...] to the ECB. It is, after all, one of the institutions of the eurozone – of which Britain is not a member – which is going to start busying itself with the City's business! Said bluntly: They don't like that in London! [...] But the truth is that this battle masks a deeper question: do the British – more Eurosceptic than ever – want to stay in Europe or not?