EU unveils banking union plan to tackle euro crisis

The European Commission unveiled plans for the European Central Bank to supervise, regulate and fine banks throughout the eurozone – a big step towards further integration.

Downing Street had been worried about the possible impact of a banking union on Britain’s financial services industry, but said today that its concerns appeared to have been met.

The prime minister’s official spokesman said: “What we were arguing in the European Council in June was that banking union was an important step to create a stable single currency but it should be banking union for the eurozone, and not the EU. That is reflected in these proposals.”

The reforms, which need to be approved by the European Union’s (EU) member states, are designed to prevent a repeat of the whirlwind that hit Europe’s banks five years ago.

‘Common decisions’

European Commission President Jose Manuel Barroso said: “The crisis has shown that while banks became transnational, rules and oversight remained national. We need to move to common supervisory decisions, namely within the euro area.”

The plans would entail a loss of sovereignty for member states, which would no longer be responsible for supervising their own banks.

Spain, whose troubled banks are receiving financial support from Europe, welcomed the proposals, but Germany is opposed to allowing the ECB to supervise every bank in the eurozone.

Another significant development today is the decision by Germany’s constitutional court to give its blessing to the permanent 500bn euro bailout fund.

Petitioners had argued that the proposed European stability mechanism (ESM) was unconstitutional, but the court disagreed.

Had it ruled against the ESM, to which Germany is expected to contribute 27 per cent of the funding, the eurozone’s debt problems could have been prolonged.

Because of the amount of money it has committed, Germany has a veto over the fund’s operation.

The ESM is due to replace the temporary European financial stability facility, used to bail out Portugal, Ireland and Greece.

Greece

Addressing the European Parliament, Mr Barrosso said Greece coud remain in the single currency as long as it was committed to reform.

The country endured a wave public sector strikes today as the Greek government pushes through spending cuts as part of an austerity programme it is imposing in return for financial help from the EU and International Monetary Fund. In a rare move, military officers are also expected to stage a march.

With voters going to the polls in Holland today in a general election, there had been fears that euro-sceptic politicians could come to the fore, but it now looks as though mainstream pro-European parties will dominate.