European Union leaders are pledging to create a body with the authority to restructure or close down banks in trouble and to give Greece desperately needed bailout funds.
The leaders meeting in Brussels said today that bank wind-downs should be paid for by money contributed by the banks themselves.
The leaders also called for the creation of a continent-wide deposit guarantee system.
The commitments came after EU finance ministers agreed to submit their banks to supervision by the European Central Bank – considered an important part of cleaning up the continent’s lending sector and ending its financial crisis.
The 17 EU countries that use the euro also waved through a total of €49.1bn in bailout funds for Greece, €34.3bn of which will be disbursed in the coming days.
Greece needs the money to stay afloat and avoid a calamitous default, but the deal is also important for the other 16 countries because disagreement over how to handle Greece had raised fears that a default would bring down the entire currency union.
The agreements came in the week European leaders accepted the Nobel Peace Prize - an award that was in equal measure recognition of the peace the union had forged in the once war-torn continent and incentive to solve its intractable financial and political crises.
So upbeat was the mood in Brussels that European Council president Herman Van Rompuy even dared to say the end of the three-year-old crisis over too much debt might be at hand.
“The worst is now behind us,” he told European leaders gathered for a Brussels summit to discuss how to build a closer union.
But a meeting over dinner last night of the leaders of the 27 EU countries laid out how much work still needs to be done to strengthen Europe against further financial shocks.
“Much remains to be done, but all the hard work is starting to pay off,” Mr Van Rompuy told a press conference early today, after the first day of the summit.
The targets included a new European body with the authority to restructure or close down banks in trouble, a continent-wide deposit guarantee system, a fund that would support countries struggling to make economic reforms, and a system that made sure countries stick to their commitments to overhaul their economies.
But the commitments agreed at the summit were vague – an indication of how many tough fights remain before the EU moves toward closer co-operation. The leaders said they would begin work on the bank resolution authority and deposit schemes next year, with the hope of reaching agreement in 2014.
The measures agreed by the EU finance ministers had been the subject of months of intense haggling.
First, finance ministers from the 27 EU countries negotiated through the night to agree to give the European Central Bank oversight of their banks.
That is a key component of what many hope will eventually become a full-fledged banking union – a single rulebook for all banks and co-ordinated plans for helping lenders in trouble.
Crucially, the single supervisor paves the way for Europe’s bailout fund to give money directly to struggling banks, without dragging governments into the mess.
Dealing with the connection between banks and government debt – a toxic loop that has forced several countries to ask for bailouts after they tried to rescue their banks – also addresses a major cause of the region’s financial crisis.