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European Union finance ministers brokered a deal on Dec. 13 to create a single bank supervisor with powers to close down lenders right across the eurozone, several officials said, reports AFP. The “historic” agreement came after 14 hours of talks and less than 12 hours from the start of a summit of EU leaders who ordered the marathon preparations, “as you know it is a key element in our plans to establish a banking union,” said Cypriot Finance Minister Vassos Shiarly, the meeting’s chair.
The “overall aim is to restore confidence in the banking sector, he added, calling the deal a ‘Christmas present for the whole of Europe.’”
The so-called Single Supervisory Mechanism (SSM) will 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.
EU Financial Markets Commissioner Michel Barnier told a press conference that the European Central Bank (ECB), which lies at the center of the new arrangements, would under the new mechanism directly supervise some 200 of the eurozone’s biggest lenders, from a total of around 6,000.
In a clear nod to Germany, despite concerns in London, for example, of the state of coffers in Germany’s regional banks, only the biggest banks will fall under the ECB’s watchful gaze. Barnier said that only banks with assets worth more than 30 billion euros will be covered directly by the new supervisory rules.
He said the new mechanism was a “first stage” that would over the course of 2013 be followed up with legislative proposals for a fund to wind-up banks that can’t be fixed and also a cross-border deposit guarantee.
These were additional elements originally suggested in plans for a banking union, a precursor to deeper economic and political integration across the eurozone as an antidote to the debt crisis.
The European Council, attended by Lithuanian President Dalia Grybauskaite, in setting up the single supervisory mechanism also includes the possibility of supervision for non-eurozone countries to join. The European Central Bank will take over the supervision of banks of the member states participating in the mechanism as soon as appropriate practical preparations are completed.
The President noted that the decision on centralized supervision is an important step towards a banking union. The reached agreement will help to address more rapidly the financial problems within the eurozone that also have an impact on Lithuania’s economy and will better protect the economy from any possible future shocks.
In the process of developing a single banking supervision scheme Lithuania sought that discrimination be avoided between eurozone and non-eurozone member states. “A compromise agreement that has been reached covers the issues raised by Lithuania to the extent allowed by the EU Treaty,” the president said.
Estonian Prime Minister Andrus Ansip said after the first day of the European Council meeting that the idea of a separate euro area budget has not been considered thoroughly yet, reports Public Broadcasting.
“I believe that today’s results are not weak. The fact that the finance ministers managed to agree upon the basics, i.e. they agreed upon European common banking supervision, is a very big step,” Ansip said.
“If we talk about the euro area’s own budget, then the final conclusion’s wording is very modest in this respect, the idea is not very thoroughly considered. The euro area budget or fiscal ability can be considered when the budget plan for several years is agreed upon, and we can proceed with that topic in June next year most likely,” said Ansip.