Eurocrats fail to agree on Banking Union
Tuesday, 04 December 2012

As a year-end deadline draws near, European finance ministers failed to agree Tuesday on key elements of a plan to establish a common banking regulator, seen as central to eurozone efforts to emerge from the debt crisis.
The proposed banking union -- agreed by EU heads of state at a summit in October -- and the European Central Bank's commitment to buy bonds of troubled eurozone nations, have been welcomed by investors as bold steps to end the crisis. Any backsliding could unsettle Europe's debt markets after months of relative calm.

By giving the European Central Bank the power to supervise the region's 6,000 lenders, the EU hopes to begin building a firewall between weak banks and national governments. Ireland was bailed out by the EU after it was forced to pump capital into its banking sector, while Spain has been granted funds to keep its banks afloat.

Banks in other eurozone states, including Italy, are facing a further deterioration in asset quality as the recession grinds on, undermining capital levels.

Supervision by the ECB would allow failing banks to draw directly from the eurozone's 500 billion rescue fund -- the European Stability Mechanism -- without their governments falling deeper into debt as a consequence.



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