Europe unveils banking union plan to tackle financial crisis
September 13, 2012, 12:22 pm TWN
STRASBOURG, France -- Europe moved a step closer to a banking union on Wednesday with a plan for the European Central Bank to supervise all eurozone banks, a cornerstone of closer fiscal integration designed to end years of financial turmoil in the region.
European Commission President Jose Manuel Barroso outlined the proposal in his annual "state of the union" address, laying out a path to further economic integration that he said he hoped would underpin the future of the euro currency.
The proposed banking reforms, which need to be approved by the European Union's member states, aim to break the link between banks and states, preventing heavily indebted countries being sucked further into difficulty by distressed lenders in need of rescue.
It tackles a core element of the crisis that first struck banks in Europe almost five years ago and escalated into a sovereign debt crisis in 2010.
"The crisis has shown that while banks became transnational, rules and oversight remained national," Barroso told members of the European Parliament. "We need to move to common supervisory decisions, namely within the euro area."
"The single supervisory mechanism proposed today will create a reinforced architecture, with a core role for the European Central Bank," he said. "It will be a supervision for all Euro area banks."
For the plan to work, it will require countries to surrender a degree of sovereignty over supervising their banks. This has long been a national responsibility, and the proposal has already led to tensions with Germany and Britain.
Although Britain, which is outside the eurozone, will not join the scheme, many international banks in London have operations in the euro area that will be affected by the ECB's new supervisory reach.
London is also worried that the ECB, emboldened by its new powers, will demand regulation that could undermine the city's position as Europe's de facto financial capital. Similar concerns are shared by countries such as Sweden.
"We've said that a banking union for the euro area must also respect the integrity of the single market for the whole of the European Union," said a spokesman for the British Treasury. "We'll ensure the agreement on it does that."