The EU summit held on Thursday and Friday made substantial progress in speeding up economic integration within the eurozone when leaders agreed to set up a single banking supervisor for the 17-nation single currency bloc – a key step towards a banking union.
This is a small revolution- European Council President Herman Van Rompuy
In a significant move, the summit agreed that the European Central Bank will have the power to intervene in any of the eurozone’s 6,000 banks. With its new supervisory powers, the ECB would be able to act early on to prevent a dangerous accumulation of debt on a bank’s balance sheets.
A legislative framework is to be in place by January 1, with the supervisory body starting work later in 2013; the timeframe of this new set-up is said to be the result of a compromise between France, which wanted a banking union as soon as possible, and Germany, which wanted a gradual introduction.
European Council President Herman Van Rompuy hailed the result of the summit as highly successful: “This is a small revolution; it means that we’ll have only one supervisor for the whole Europe, who – to a certain extent – will replace all the national supervisors. You know the source of our problem is the financial crisis. Now we will have only one supervisor for Europe, if we had this in 2008 I don’t think the crisis would have reached this level,” Van Rompuy said.
Meanwhile, while this agreement on a banking union was definitely a step towards further European integration, the perception in Brussels is that Britain is (unfortunately in my view) loosening its ties within the EU. Last week, for example, the UK Government announced it would pull out of 130 EU-wide agreements on crime and justice.
In a move aimed at appeasing eurosceptic Tory backbenchers but which will no doubt inflame tensions with the Conservative’s Liberal Democrat coalition partners, Home Secretary Theresa May announced that the Government intends to opt out of a whole range of EU police and justice measures, which is allowed by the EU treaty, including the European arrest warrant.
Furthermore, Prime Minister David Cameron warned his fellow EU leaders at last week’s summit that Britain would use its veto during discussions on the bloc’s next budget in his bid to get a “new settlement” for the UK, and that he could prove difficult when discussing the conditions for a single supervisor for eurozone banks in December.
He said: “I don’t want to get in the way of a proper banking union. But I am very conscious that I am the Prime Minister of a country with 40 per cent of the EU’s financial services.”
Finland’s Minister for Europe Alex Stubb expressed his disappointment at Britain’s latest stand within the EU. “It’s almost as if the boat is pulling away and one of our best friends is somehow saying bye,” he told Reuters.
It now seems, however, that the idea of a European Union of different speeds, which was once considered a taboo in EU circles, is slowly being accepted as a possibility.
Charles Grant, director of the Centre for European Reform, a respected London-based think-tank on the EU, thinks that there could be three levels of integration within the 27-nation bloc: the eurozone members who will give up national control over their budgets; non-euro members who intend to join the single currency and who will probably join the banking union; and the EU as a whole which will focus on areas such as the single market, energy and climate. According to the CER, the UK will be in this third group, along with a few other countries.
On the whole, the EU has been having a reasonably good few weeks, despite the fact that the eurozone crisis has not yet subsided and countries such as Portugal, Spain and Greece are witnessing social unrest as a result of harsh austerity measures.
The obvious disappointment was last week’s announcement that Malta’s European Commissioner, John Dalli, had resigned after allegations made by the EU’s anti-fraud office (OLAF) linking him to an attempt to influence tobacco legislation. The resignation, the first by an EU Commissioner as a result of a report by OLAF, was hugely embarrassing for both Malta and the EU.
However, last month there was quite a bit of good news: the European Central Bank announced its sovereign bond-buying programme, Germany’s constitutional court gave the go-ahead for the European Stability Mechanism and Dutch voters veered away from anti-EU parties in the country’s general election. And last week, the EU was awarded the Nobel Peace Prize, a justified recognition of its work at forging peace, reconciliation and the consolidation of democracy in Europe.
Furthermore, borrowing costs for Spain and Italy appear to have fallen considerably. Three months ago, Spain was paying 7.5 per cent to borrow money for 10 years on the bond market, but last Friday the rate was 5.3 per cent.
For Italy, the rate has fallen from more than 6.5 per cent to about 4.75 per cent. Is it possible that the markets have finally shown some faith in the Spanish and Italian economies? Let’s hope so, as these two countries are absolutely crucial for the eurozone’s survival.