Whatever the EU leaders give birth to at Thursday’s summit, it will not be the banking union they have been talking about for months.

It was to consist of four elements: integrated banking supervision, a deposit insurance scheme, a resolution scheme for the orderly winding down of non-viable institutions, and a common regulatory framework on supranational banks.

At best, only the first of those will be realised, and even that is highly dubious. And even if single European banking supervision is indeed introduced, it would be a gross exaggeration to call it a “union”.

Missed opportunity

Banking union should have happened 10 or 15 years ago. We have long had what effectively amounts to a single financial market – European banks operate transnationally, investors buy neighbouring countries’ bonds, citizens set up accounts in other member states – and it is only the financial watchdogs that remain national.

As a result, big banks are less regulated in Europe than in the US; worse still, the EU lacks Chapter 11-style protection regulations [allowing firms to be reorganised in case of] large-scale bankruptcies.

Once again national interests are preventing a closer union. Germany does not want the single banking supervision meddling with their Sparkassen [regional savings banks]. France would like to avoid common regulations, especially on required equity levels.

The Netherlands doesn’t want to pay for the deposit insurance scheme. But it is the United Kingdom that is banking union’s greatest opponent, fearing a deadly attack against the City, the financial heart of Europe and main driving engine of the British economy. David Cameron is coming to the summit with a veto in his pocket.

Eurozone banking union

Banking union was to be a step towards a European economic recovery. Instead, we are in for yet another summit of political helplessness – an even more embarrassing one since it will take place shortly after EU officials have accepted the Nobel Peace Prize in Oslo.

But the impossibility of reaching an EU-wide agreement will have one very specific consequence: The eurozone countries will set up their banking supervision.

If a summit of 27 states ends in a fiasco, 18 of them will have received a clear mandate to pursue closer integration between themselves. The proposition of a separate eurozone budget has already been tabled.