European Union leaders have announced they had agreed to create a single supervisor for banks in countries that use the euro — without saying when it would become fully operational.
The deal, reached at a summit of EU leaders in Brussels, represented a shaky compromise between the Germans and French, who had been tussling over how to shore up the eurozone's stricken banking system — one of the main causes of Europe's debt crisis.
France has been pushing to get all 6,000 banks in the 17 euro countries under the supervision of one European body by the end of this year. Leaders agreed in June that, once a supervisor is in place, struggling financial institutions would be able to tap Europe's emergency bailout fund, the European Stability Mechanism, directly.
At the moment, money to help put banks has to go through a country's government — placing more strain on state finances. In Ireland's case, the government's attempts to rescue failing banks forced it into a bailout. Some fear Spain could face that fate, too.
But Germany's Chancellor Angela Merkel, wary of using taxpayers' money to prop up other countries' banks, tried to put the brakes on the plan, insisting that creating the supervisor should be done slowly and that “quality must come before speed”.
The compromise included something for both — all 6,000 banks will be included, as France had wanted. But there is no firm deadline for the single supervisor to be up and running — other than to say that the “objective” is to finish the legal framework by January 1, and that work on its operational implementation “will take place during the course of 2013.”
“It is not because you vote on a law that you have the whole logistic framework in place the day after,” said Van Rompuy.
Despite the lack of a deadline, French President Francois Hollande hailed the agreement.
“The worst is over,” he said, referring to the crisis that has shaking the European Union to its roots.
However, there are still more issues under debate at the summit, which runs until Friday.
Merkel is pushing a proposal for the European Union's monetary affairs commissioner to become an enforcer of the bloc's budget rules — including the power to refuse member countries' proposed spending and tax plans and send them back for changes.
Germany hopes that having a “budget czar” — a move that's been bandied about for months — will help keep Europe from repeating past mistakes by stopping governments from overspending and needing expensive bailouts. But some countries, like France, are wary of handing control over their finances to unelected officials in a foreign capital.
On arrival Thursday, President Francois Hollande of France — increasingly the counterpoint to Germany's weight in the EU — brushed off the suggestion as simply not on the table at this summit.
With unemployment in the region at a record 10.5 percent, and growth grinding to a halt around the continent, the back-and-forth is beginning to frustrate some European officials. Jose Manuel Barroso, who is president of the EU's executive arm, the European Commission, criticized the heel-dragging ahead of the meeting.
“There is not all over Europe the same sense of urgency,” said Barroso.
In addition, with no relief in sight for beleaguered Spain, the question of whether it will ask for a bailout itself looms. The government in Madrid said this week that it would decide in the coming weeks — although it is still hoping it can avoid asking for any kind of aid.
But the political pressure on Spain is great because should investors become convinced that Madrid will not request aid, they may once again sell off the country's bonds, causing its borrowing rates to rise. If Spain were to be locked out of bond markets because of excessively high rates, the 17 countries that make up the eurozone would have to rescue it at huge financial cost.
“It would be helpful ... if Spain asked for ESM aid,” said Van Rompuy, who is president of the European Council, the body composed of the leaders of all the EU countries. “But it is up to Spain to make up its mind.”
Leaders also praised the progress it said Greece had made toward reforming its economy and balancing its budget, though, without a new report by international lenders, no decision could be taken on badly needed continued aid for country.
On Thursday, rioters in Athens pelted police with Molotov cocktails and chunks of marble on Thursday to protest the stringent budget cuts the country has had to implement to secure its rescue loans.
Greece's bailout creditors — the EU, the International Monetary Fund and the European Central Bank — have been engaged in tough negotiations in recent weeks over more budget cuts. The group of creditors, known collectively as the troika, has said it won't release the next batch of loans until more savings are made. Without those loans, Greece will default and probably be forced to leave the eurozone.
Budget cuts have been blamed for sinking many countries in Europe into recession and have unleashed protests around the continent.
Van Rompuy said countries were starting to see the first positive effects of austerity, with deficit levels down and borrowing costs falling. But countries “are still suffering a lot,” he said. Some 25 million people are without a job in the EU and economic growth prospects are weak.
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