European Union leaders had to work long after midnight to close the deal on a single bank regulator. The agreement is pocked with compromises to smooth over a variety of concerns, large and small. And the conflicting visions of what else the currency bloc must do to end the debt crisis remain.
But compromise they did. The deal, moreover, goes beyond the stopgap measures typical of Europe’s crisis management since Greece’s near-collapse in 2010. That’s even more reason to celebrate.
The leaders agreed to make the European Central Bank the hub of bank supervision by March 2014 for the 17 countries using the euro. As many as 200 large banks -- those with at least 30 billion euros in assets, or whose assets are greater than 20 percent of their country’s gross domestic product -- will come under the ECB’s direct supervision.
In a concession to Germany, thousands of smaller banks will remain under the control of national regulators. But to satisfy France, the ECB could step in any time, setting the important principle that the ECB can overrule regulators who fall under the spell of local interests. The arrangement also has the potential to eliminate one major driver of the debt crisis -- the unhealthy relationship between governments that issue too much debt and local banks that buy too much of it.
Another compromise involves the U.K. and other countries that aren’t part of the euro area, and therefore lack a voice at the ECB. They will be able to challenge central-bank supervisory decisions, especially when it comes to rules on cross-border banking.
More needs to be done, without a doubt. Leaders still must design an EU-wide system of deposit insurance and a method for dismantling failing banks. The exact means by which non-euro states can challenge rules also needs better definition.
Still, the surprise is that the bank regulatory pact could be achieved at all without alienating Germany and France or the non-euro-area countries. Coming on top of a September decision by the ECB to support the bond markets of vulnerable countries, the deal offers a further promising sign that the single market can mend its structural flaws.
Once the banking union’s final shape is approved, the 500 billion-euro rescue fund, the European Stability Mechanism, will be able to directly support sick banks. The fund essentially pools European money to clean up mistakes made at the national level. Such aid would allow banks to be recapitalized without adding yet more debt to the balance sheets of struggling governments, including Ireland, Italy and Spain.
More broadly, the euro area still needs a permanent system for fiscal transfers to help vulnerable economies in the future. Yet the fact that leaders could agree on a single banking authority shows there is a desire and the political will to achieve a true economic union. It may take another five years to get there, but the pathway has been marked.
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