For most of the year, the biggest question for the euro zone was whether the pace of reform would pick up after German elections which are now just six days away. Thanks to a Reuters exclusive over the weekend it appears the answer could be yes, at least incrementally.
Senior EU officials told us that Germany is working on a plan that would allow the completion of a euro zone banking union without changing existing EU law. Until now, Berlin has insisted the EU would have to amend its Treaty to move power to close or fix struggling banks from a national to a European level – a process which could take years.
In exchange, a cross-border resolution agency would only rule over the fate of 130 euro zone banking groups that will be directly supervised by the European Central Bank from the second half of 2014. That would leave Germany’s politically sensitive savings banks under Berlin’s control.
This is potentially huge. With the ECB effectively underwriting the bloc’s governments with its bond-buying pledge, a cross-border body to restructure or wind up failing banks would do the same for the financial sector. That might finally break the “doom loop” of weak banks and sovereigns weighing on each other, which exists as long as only national backstops are in place.
The resolution fund is to be financed by banks themselves, but until enough money is accrued through their contributions, the euro zone’s ESM rescue fund could lend to the fund to be repaid later, ECB board member Joerg Asmussen said on Friday.