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Eurozone banking union is new EU summit test Eurozone banking union agreed by finance ministers
(about 3 hours later)
By Laurence Peter BBC News European finance ministers have reached agreement on a eurozone banking union ahead of an EU summit in Brussels.
Just days after the leaders of France and Germany held hands in a salute to mark the EU's Nobel Peace Prize honour it will be back to the hard grind of negotiations on Thursday. The deal follows months of strained negotiations between member states and it will now be put before European leaders later on Thursday.
The aim at the Brussels summit is to reach a political deal to launch a eurozone banking union.
New rules on prudent banking are seen as vital to bolster the euro, as bank failures triggered the financial crash.New rules on prudent banking are seen as vital to bolster the euro, as bank failures triggered the financial crash.
But there are some serious differences about how to proceed. The EU has already agreed that the European Central Bank (ECB) will act as the chief supervisor of eurozone banks.
Sharp divisions would not reassure the markets after last month's bad-tempered and inconclusive summit on the EU's multi-year budget. "We have reached the main points to establish a European banking supervisor that should take on its work in 2014," said German Finance Minister Wolfgang Schaeuble, after 14 hours of talks ended shortly before dawn.
Under the deal, banks with more than 30bn euros ($39bn) in assets will be placed under the oversight of the European Central Bank.
The deal gives the ECB powers to close down eurozone banks that don't follow rules. It also paves the way for eurozone rescue funds to come to the aid of struggling banks.
"Piece by piece, brick by brick, the banking union will be built on this first fundamental step today," said EU Commissioner Michel Barnier.
EU leaders believe that the first stage of a banking union - a Single Supervisory Mechanism (SSM) - can be put into place without having to change EU treaties.EU leaders believe that the first stage of a banking union - a Single Supervisory Mechanism (SSM) - can be put into place without having to change EU treaties.
But there are some legal doubts about the subsequent stages - a joint deposit guarantee scheme and a joint resolution mechanism for winding up broken banks. But there had been some legal doubts about the subsequent stages - a joint deposit guarantee scheme and a joint resolution mechanism for winding up broken banks.
The UK's House of Lords EU Committee said on Wednesday it was "not convinced that an effective banking union can be created within the existing constraints of the European treaties".The UK's House of Lords EU Committee said on Wednesday it was "not convinced that an effective banking union can be created within the existing constraints of the European treaties".
London is the EU's main financial centre, and handles by far the biggest share of euro foreign exchange transactions. So the UK government is anxious to safeguard the City's powerful role and prevent its business leaching to a more integrated eurozone.London is the EU's main financial centre, and handles by far the biggest share of euro foreign exchange transactions. So the UK government is anxious to safeguard the City's powerful role and prevent its business leaching to a more integrated eurozone.
Deeper integrationDeeper integration
The EU has already agreed that the European Central Bank (ECB) will act as the chief supervisor of eurozone banks. France and Germany appear to have found a compromise on the scope of the ECB's new supervisory powers. The sticking point has long been the threshold at which the ECB would intervene - Germany argues that many of its regional banks are too small to warrant ECB attention.
France and Germany appear to have found a compromise on the scope of the ECB's new supervisory powers. The sticking point has been the threshold at which the ECB would intervene - Germany argues that many of its regional banks are too small to warrant ECB attention.
The summit's chairman, European Council President Herman Van Rompuy, will try to get a commitment to launch the SSM in January 2014 at the latest. His vision for far-reaching eurozone integration is set out in a report, which will be the focus of the discussions.The summit's chairman, European Council President Herman Van Rompuy, will try to get a commitment to launch the SSM in January 2014 at the latest. His vision for far-reaching eurozone integration is set out in a report, which will be the focus of the discussions.
The report included input from the European Commission, ECB and Eurogroup - the finance ministers of the 17 eurozone nations.The report included input from the European Commission, ECB and Eurogroup - the finance ministers of the 17 eurozone nations.
While banking union is the immediate focus, the report also proposes "contractual" arrangements between eurozone governments and the Commission, to prevent governments delaying, or reneging on, important economic reforms.While banking union is the immediate focus, the report also proposes "contractual" arrangements between eurozone governments and the Commission, to prevent governments delaying, or reneging on, important economic reforms.
The quid pro quo would be central financial support for specific reforms - "solidarity" money from a new eurozone budget, to which all eurozone members would contribute. Such a mechanism could in future help to ease the kind of chronic unemployment that is afflicting Greece and Spain.The quid pro quo would be central financial support for specific reforms - "solidarity" money from a new eurozone budget, to which all eurozone members would contribute. Such a mechanism could in future help to ease the kind of chronic unemployment that is afflicting Greece and Spain.
Legal questionsLegal questions
Only two EU members - the UK and Denmark - have formal opt-outs from the euro. The others still outside the euro are committed to joining, and can sign up to the banking union in the meantime.Only two EU members - the UK and Denmark - have formal opt-outs from the euro. The others still outside the euro are committed to joining, and can sign up to the banking union in the meantime.
The leaders are likely to avoid any measures that could trigger treaty change before the European elections in mid-2014, because treaty change is nearly always a thorny issue for the EU. It took seven years for the EU to adopt the Lisbon Treaty.The leaders are likely to avoid any measures that could trigger treaty change before the European elections in mid-2014, because treaty change is nearly always a thorny issue for the EU. It took seven years for the EU to adopt the Lisbon Treaty.
Germany's Constitutional Court has already flexed its legal muscles over eurozone integration. There is strong opposition in Germany and other richer eurozone nations to any further taxpayer-funded bailouts of indebted banks and governments.Germany's Constitutional Court has already flexed its legal muscles over eurozone integration. There is strong opposition in Germany and other richer eurozone nations to any further taxpayer-funded bailouts of indebted banks and governments.
Chancellor Angela Merkel insists that the banking union cannot be rushed - and she does not want to jeopardise her chances in Germany's elections next autumn.Chancellor Angela Merkel insists that the banking union cannot be rushed - and she does not want to jeopardise her chances in Germany's elections next autumn.