Outcome of Brussels Budget Summit: Everybody Wins

European Parliament
Photo: fotopedia.com: Tom Redford

In anticipation of future discussions, Europeans states reached a compromise last Thursday night in Brussels about the concept of a Banking Union, despite disagreements between France and Germany. It was decided that a Banking Union would be created for the 6,000 Europeans banks before 2014. Ultimately the European Central Bank (ECB) would leave the day-to-day supervision of banks to the National Central Banks, but the ECB would have the possibility to intervene whenever necessary in a particular case.

Concerning the timetable, François Hollande got the last word as the technical framework should be fixed at the end of the year. With the legislative elections coming, Angela Merkel was opposed to this, since German electorate does not want to bear the cost of the rescue of foreign banks, some argued. Greece is waiting €31.5 billion of aid from the European Union, for example.

The second stage will occur in January 2013 when the ECB will start to create bodies and staff in charge of the banking supervision, but the system will not necessarily start to work immediately. There will be a progressive implementation throughout the year. This is in Germany’s favor, as Angela Merkel will approach the legislative elections more calmly.

When the supervision system will be in place, the European Stability Mechanism will enter into action in order to recapitalize the banks directly. In particular, Spanish banks will benefit from the bailout fund, but they will probably have to wait until the end of 2013, maybe 2014, according to a Korean diplomat cited by the AFP (Agence France-Presse) – the largest French news agency.

Indeed, the President of the ECB recognized the supervision would not be operative before 2014: “Whether this happens in January 2013 or the 1st of January 2014, honestly, it does not make a difference, as long as the commitment [of the States] is strong,“ said Mario Draghi.

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