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EU Agrees To Full Banking Union In 2013

by Ulrika Lomas,, Brussels

23 October 2012

Following a lengthy and heated debate, with tensions rife between France and Germany, European Union (EU) leaders finally agreed in Brussels that a singly supervisory banking mechanism for the eurozone will enter into force during the course of next year.

The legal technical framework to achieve this ambitious goal is to be adopted by the end of 2012.

Under the current plans, the European Central Bank (ECB) will have overall responsibility for banking supervision in the euro area. The aim is that all 6,000 banks in the eurozone will be supervised by the ECB by 2014, although day-to-day oversight is to be managed at national level.

The move paves the way for capital to be directly injected from the permanent eurozone rescue mechanism, the European Stability Mechanism, into ailing banks, thereby averting any risk to Europe’s financial system without increasing national debt.

The International Monetary Fund has for a long time insisted that the creation of a full banking union is key to overcoming the eurozone debt crisis.

Despite the accord finally reached in Brussels, cracks are slowly and visibly emerging in Franco-German relations. Socialist French President François Hollande is determined to press full steam ahead with a swift banking union, while German Chancellor Angela Merkel remains insistent that quality must come before speed.

Merkel maintains that it will take more than a couple of months before the single banking supervisor is fully operational. Only then can direct bank recaptialization be considered, the Chancellor said.

During the course of the meeting, Merkel stunned leaders and divided opinion by calling for a European fund to be set up to finance specific projects within the eurozone, to be directly funded by revenues from the financial transactions tax. Eleven countries recently united on plans to introduce such a levy within the framework of enhanced cooperation.

Austrian Chancellor Werner Faymann recently called in Paris for revenues to flow to a fund for education within the European Union budget. He advocated that the product of the tax be used to realise investments and also to create an education fund within the EU budget to guarantee training for young people, thereby combating high levels of youth unemployment.

French President Hollande has also proposed using the product of the tax for employment, for investment, for training, in particular for youth training, and for providing qualifications to young people.

TAGS: tax | investment | training | law | banking | tobin tax | education | unemployment | Austria | France | Germany | European Union (EU) | Europe

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