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EU Clears Banking Union as Greece Gets Latest Bailout

  • Henry Ridgwell

Greek Prime Minister Antonis Samaras (L) looks away as Prime Minister of Denmark Helle Thorning-Schmidt (2nd R) talks with French President Francois Hollande (R) in Oslo, Sweden, December 10, 2012.

Greek Prime Minister Antonis Samaras (L) looks away as Prime Minister of Denmark Helle Thorning-Schmidt (2nd R) talks with French President Francois Hollande (R) in Oslo, Sweden, December 10, 2012.

European Union finance ministers have agreed to create a single supervisory body to oversee the eurozone’s biggest banks. It is seen as the first step toward a full banking union across the single currency bloc - part of moves to try to prevent another euro debt crisis. Greece also will receive another chunk of its multi-billion-dollar bailout. But many analysts warn that the crisis is far from over

Europe’s bailed-out banks have been dragging down the balance sheets of eurozone countries. So for months, EU leaders have been debating a banking union.

In the early hours of Thursday morning, they went one step closer - signing a deal to create a banking supervisor whose job will be to police 200 of the eurozone’s biggest banks in an effort to prevent a repeat of the 2008 financial crisis.

Full banking union

French Finance Minister Pierre Moscovici was one of the first to hail the agreement. He said the accord was a success and described it as real progress that also has opened the possibility for improvements in the future.

Europe is moving toward a full banking union across the 17 countries that use the euro, according to Spyros Economides of the London School of Economics.

“A banking union is the first step towards fiscal integration, which is the first step towards a central political authority. Others will say no; we want a loose association, perhaps modeled on the one we’ve got now which is based on the market,” said Economides.

The deal means that by 2014, banks with more than $39 billion of assets will be overseen by the European Central Bank, which also will grant and revoke banking licenses. In addition, the ECB will intervene in smaller banks at the first sign that they are getting into trouble. That is a significant handover of authority, said Economides.

“I think what’s happening is there’s a big debate going on about what kind of Europe we want to see in the future. It’s not simply about this crisis; it’s about the existence of a particular kind of Europe,” he said.

Money for Greece

In a further boost for the struggling euro, finance ministers also agreed to release a $44-billion portion of bailout money to Greece, which had been on hold since June. Greek Prime Minister Antonis Samaras welcomed the news, claiming "Greece is back on its feet."

Such a declaration is premature, said economist Sony Kapoor, director of the European policy institute Re-Define.

“It will manage to put a little bit of balm on the wound that Greece has become. But we must remember this wound is entirely self-inflicted, and unfortunately this cycle will continue into the next year,” he said.

Challenges ahead

Kapoor said an opportunity was missed to properly address the eurozone’s ailing banks.

“When the scale of the Spanish banking problems was first highlighted, we talked in abstract about breaking the link between banks and countries, where weak banks are bringing the countries down, and weak countries are bringing banks down. And we have completely failed to do that,” said Kapoor.

EU leaders hope the banking union - or Single Supervisory Mechanism, as it is known - can be put into place without signing any new treaties. But analysts warn that many more complicated negotiations await in 2013.
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