The 27 European Union member states reached an agreement overnight on the single supervision of eurozone banks. The agreement was reached in Brussels after a 17-hour negotiating marathon at the Ecofin meeting and was announced by EU Internal Market Commissioner Michel Barnier. "Historical supervisory agreement!" Barnier tweeted, later specifying that the union will be operational from March 1, 2014.
Despite some difficulty and another all-night marathon, the Ecofin Council managed to reach an agreement before the summit of the 27 EU leaders, who will meet today to approve the final text, prior to its final passage to the European Parliament. After an initial round of public negotiations, the EU finance ministers reached the compromise needed to meet Europeans' expectations, to whom they had promised a decision by the end of the year, and to ensure that today's summit does not miss the cornerstone of strengthening governance, a central theme of the summit.
Single supervision represents the first phase of banking union: starting March 1, 2014, the ECB will have the power to monitor all banks in the eurozone—and in non-eurozone countries joining the union—with assets of at least €30 billion, or representing 20% of the country's GDP. Banks below that threshold (virtually all Landesbanks, as Germany wanted) will remain under the supervision of national authorities and the EBA. More than 100 banks, at least in the immediate future, will instead be subject to Frankfurt's supervision starting March 2014. The agreement on single banking supervision is "the first fundamental step towards banking union," and its goal is "to restore confidence in the system and break the vicious cycle between banks and debt crises," Barnier said at the end of the marathon meeting.
The ministers are considering a "general approach" to single supervision, which clarifies all the doubts of the most skeptical countries, such as Germany, Sweden, and the United Kingdom, which attempted to assert their positions until the very end. Berlin wanted to ensure that the ECB would not overlap its monetary policy-setting and supervisory responsibilities. It was satisfied with the creation of a "mediation body" that will make decisions should the ECB's Board of Governors raise objections to decisions by the "Board of Supervisors," the new ECB body responsible for oversight. The mediator will consist of one member from each national authority, and therefore the final decision will rest with the member states.
Great Britain and Sweden had concerns about the excessive power eurozone countries would acquire within the EBA, the national authority currently responsible for overseeing EU banks. In the vote, eurozone countries would have had 17 votes against the 10 of non-eurozone countries, so it was decided to vote with a double majority: to approve the regulations, a majority of eurozone countries and a majority of non-eurozone countries will be needed. Finally, the doubts of non-eurozone countries joining the single supervisory body (so far only Great Britain, Sweden, and the Czech Republic have opted out) have also been clarified, as they feared they would have less influence due to their lack of representation at the ECB. The agreement ensures "equal rights" for everyone, both on the "Board of Supervisors" and in the mediation body.
Single supervision is the first step towards banking union, and it also paves the way for direct recapitalization of banks by the European Stability Mechanism (ESM), a necessary step to avoid burdening public debt with support operations for struggling banks (currently, aid is given to states, not directly to banks). According to Barnier, until single supervision is operational, the ESM can request the ECB's individual intervention in the bank it wishes to recapitalize.
