EU leaders promise further steps to quell economic crisis

BRUSSELS - Reuters

German Chancellor Merkel (R), British PM Cameron (L) and Croatian Prime Minister Milanovic (C) chat at the start of a European Council meeting at the Council’s headquarters in Brussels.

European leaders agreed to take further steps to shore up their finances and sustain momentum in tackling the debt crisis on Dec. 14, a day after clinching a deal on banking supervision and approving long-delayed aid to Greece.

After more than eight hours of late-night talks at a summit in Brussels, leaders promised to push ahead with setting up a mechanism to wind down problem banks, although it was unclear when the facility would be completed.

They also launched tentative discussions on how to make countries stick to economic targets and on creating a “solidarity fund” to help member states suffering one-off economic shocks but did not delve deeply into either issue, pushing the debate to the middle of next year.

With officials concerned about complacency creeping into decision-making now that financial markets have calmed and the crisis seems less acute, leaders appeared intent on showing that they are not relaxing.

That said, no concrete decisions were taken at the summit. Instead, it was more about verbal commitments to push ahead. “This evening we decided to put in place a single resolution mechanism,” Herman Van Rompuy, president of the European Council and chairman of the summit, told a news conference. The European Commission will present a proposal on the mechanism, which would assist troubled banks by keeping the good parts alive while the unhealthy operations are shut down during 2013, Commission President Jose Manuel Barroso said.

Agreement on roadmap

French President François Hollande told reporters the mechanism would “see the light of day” during the year, but it was not clear whether he expected it to be functioning by then or merely be in the early stages of construction. “We agreed to a roadmap for the future development of the currency union,” said German Chancellor Angela Merkel, without going into detail about the discussions. The two-day summit, the sixth and last of 2012, had only ever been intended to be a detailed discussion on how best to overhaul economic and monetary union and correct the problems that have fuelled three years of debt crisis.

The meeting was held just hours after EU finance ministers achieved a significant breakthrough in negotiations over a ‘banking union’ by agreeing that the European Central Bank (ECB) would be made the chief supervisor of eurozone banks. That decision, and another by eurozone ministers to release up to 50 billion euros in new aid to Greece, marked two positive developments after a long year of crisis-management and took some of the pressure off leaders to make major strides.

ECB President Mario Draghi hailed the deal on banking supervision, the first stage toward a banking union with more pooled sovereignty, as an important step toward a stable economic and monetary union. Under the deal, officials said the ECB would regulate some 150 to 200 banks directly, all major cross-border lenders and state aided institutions, with the power to delve into all 6,000 banks in case of problems.

Olli Rehn, the EU commissioner for economic and monetary affairs, said “Cassandras” who had predicted disaster for the euro and a Greek exit had been proven wrong.

But there is little time to relax. The next stages of the banking union, creating a resolution fund for assisting troubled banks and coordinating deposit guarantees to protect savers, may be fought over even harder. In addition, there will also be political and financial hurdles to negotiate throughout the year.