Oct. 19 - European Union leaders agreed on Friday that a single supervisor will take responsibility for overseeing euro zone banks from next year, in a step towards banking union. But obstacles remain, and Germany has voiced concerns about using the euro zone's rescue funds to inject capital directly into struggling banks. Joanna Partridge reports.
A decision on banking union - seen as key to resolving the three-year old euro zone debt crisis. European leaders took the first step towards that in Brussels on Friday. They agreed to create a single supervisor to oversee all euro zone banks from 2013. It's not yet clear what powers that supervisor - the ECB - will have, or how many banks it will monitor. But EU officials said 6000 lenders would gradually come under its supervision - the banks receiving state aid going first, followed by the larger cross-border institutions. SOUNDBITE: French President Francois Hollande, saying (French): "This evening, with the banking union, we managed to get back stability and efficient mechanisms necessary for tomorrow to avoid a banking crisis. I think for the markets and public opinion, for all those who are waiting for Europe to get back on track, it was a good evening." The banking supervisor opens the way for the euro zone's rescue fund to inject capital into struggling lenders. But German Chancellor Angela Merkel has already raised new hurdles to using that money to recapitalise banks directly. SOUNDBITE: German Chancellor Angela Merkel, saying (German): "Just getting the finance minister to establish the legal framework quickly is very ambitious. We shouldn't disappoint markets by changing short term announcements again and again." The leaders left one of the trickiest issues to one side - what representation non-euro zone banks will get at the ECB if they join the scheme. Britain, which has Europe's biggest banking sector, and other countries are concerned their banks could end up at a disadvantage. Other obstacles still have to ironed out, but it's the right move for the euro zone, says Angus Cambell from London Capital Spreads. SOUNDBITE: Angus Cambell, London Capital Spreads, saying (English): "Politicians aren't known for moving quickly, so what we have seen is obviously things have taken a very long time, but we have seen gradually movement in the right direction, that's the main thing. Is it too late for these measures? Possibly not." For once, the EU leaders' summit wasn't under heavy pressure from financial markets. Banking union may still be a distant prospect but investors seem to be felling slightly more positive about Europe's progress, even though they are still waiting to see the troika's report on Greece and hear whether Spain is going to request a bailout. Joanna Partridge, Reuters