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EU makes important step toward banking union

Published on NewsOK Modified: March 19, 2013 at 12:49 pm •  Published: March 19, 2013
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To finance the bank recapitalizations, the eurozone and the IMF on Saturday forced the Cypriot government to levy a one-time tax on all people having a bank account in Cyprus — from pensioners to big investors — to net €5.8 billion ($7.5 billion), plunging the country into a political crisis.

The unprecedented measure has also diminished investors' confidence in the European banking sector, making it plain that the bloc still has a long way to go toward a unified banking system that will be governed by the same rules and backed-up by a Europe-wide deposit guarantee.

"The case of Cyprus reminds us that the banking system in Europe is vulnerable and still very fragile," said Hannes Swoboda, the European Parliament's center-left caucus leader.

Swoboda said the incident shows that joint banking supervision can only be the first step toward a full banking union. "We urge the Commission to speed up work on a European resolution mechanism to deal with future bank failures in order to complete what has been achieved today," he said.

But a joint resolution and bailout entity is still met with skepticism in countries like Germany, Europe's biggest economy, where leaders fear their money could be used to bail out banks in other countries. They therefore insist that the ESM should only be allowed to rescue banks who got in trouble after the ECB's joint supervision has taken effect, excluding problems of the past that have dragged down banks and then government finances in countries such as Ireland, Greece, Spain and Cyprus.

The agreement struck Tuesday still needs formal approval by EU ministers.

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Juergen Baetz can be reached on Twitter at http://www.twitter.com/jbaetz