Viktor Tsvetanov,

Editor (Europe)

 

BRUSSELS – European leaders reached an agreement upon centralized banking supervision. A legislative framework is to be in place by 1 January, next year, with the body starting work later in 2013. The agreement will cover all 6,000 banks in the Eurozone, while national bodies will still keep their day-to-day functions.

The European Central Bank will be given the authority to intervene in any bank within the Eurozone, which is why market economists consider such move as a key step to overcome the EU’s three-year-old debt crisis.

The deal represents a compromised decision between Germany and France, who earlier disagreed over the timing and over the number of banks the ECB will oversee. While the European Commission and France wanted the new body to be fully operational in January 2013, Germany stressed on the importance of keeping to strict national budget discipline.

“Concerning the move towards banking supervision, we have decided that moving forward with the principal of quality is more important than rapidity. This means we will not have a working banking supervision at the beginning of 2013” German Chancellor, Angela Merkel, explains.

“We are on track to solve the problems that for too long have been paralyzing the Eurozone and made it vulnerable,” Francois Hollande added.

The banking union plan will work to assure banking institutions’ fiscal capacity. Furthermore, it will be able to recapitalize struggling banks directly without adding to a country’s sovereign debt pile.

With this new supervisory power, the ECB will fight systemically dangerous accumulation of debt and therefore prevent debt crisis, as the one taking place in Spain and Greece.