European Leaders Back Banking Regulation but Delay Further Measures

BRUSSELS — European Union leaders pledged on Friday to take further steps to set up common banking rules for the bloc, but they delayed plans for a shared budget for the euro zone nations as pressure appeared to be easing on the single currency.

At the end of a two-day summit meeting, the leaders fully endorsed a deal, reached Thursday by European finance ministers, to place the region’s biggest banks under the supervision of the European Central Bank.

The leaders also agreed on the need to put in place by 2014 a central means for shutting down failing euro zone banks. That policy is aimed at stopping banks from accumulating so much debt that they put the finances of countries like Ireland and Spain at risk, in turn threatening the future of the euro.

But the leaders also appeared to take advantage of the relative calm in financial markets to avoid rushing toward any further central integration of banking in the region.

At a news conference Friday at the end of the meeting, Chancellor Angela Merkel of Germany brushed off suggestions that leaders were complacent. She acknowledged, however, the difficulties of pressing 27 different nations to adopt similar fiscal and economic systems in the middle of a period of low growth and high unemployment.

“On the one hand, we have accomplished a lot,” she said. “But we also have tough times ahead of us that can’t be solved with one big step.”

Analysts were mostly unimpressed by the results.

“The E.U. summit failed to deliver any big decisions,” Gizem Kara, an analyst with BNP Paribas, wrote in a research note Friday. “Certainly, some countries — Germany, in particular, with its election in September — may want to postpone major decisions as much as possible.”

Pursuing a more integrated banking framework could entail even more difficult negotiations than in the case of the banking supervisor because it implies that nations share some liability for failing lenders in other countries and that they give up some sovereign rights over how those decisions would be made.

As part of efforts to make it acceptable, the European leaders said the resolution system should receive significant financing by banks, in advance. A financial “backstop” to ensure failing banks do not endanger national finances should be “fiscally neutral over the medium term” and ensure that “public assistance is recouped by means of ex post levies on the financial industry,” the leaders said in their formal conclusions.

But other plans, like a bigger budget for the euro area, would have to wait amid continuing disagreement on what it should be used for.

France has continued to emphasize the need for a budget to counter economic shocks and better manage unemployment. But Germany wants the money mainly available for countries that carry out painful structural reforms.

Leaders agreed to establish a so-called solidarity fund for euro area countries, which would be limited to 10 billion to 20 billion euros ($13 billion to $26 billion). The fund would be linked to countries signing contracts in exchange for carrying out reforms.

“To me it seems rather intelligent to start with a specific fund dedicated to these contracts for employment, growth and competitiveness, more than waiting for an eventual budget for the euro zone that perhaps will never come,” the French president, François Hollande, said in a news conference Friday.

The current atmosphere of calm could still be broken by events in Italy, where the economy is contracting, debt levels are rising and Silvio Berlusconi, the scandal-tainted former prime minister, has threatened to try to reclaim his old office next year.

It remained unclear Friday whether Mr. Berlusconi would run and, if that were to happen, whether he would campaign on promises to reverse reforms put in place by Mario Monti, the current prime minister.

But leaders are aware that the re-emergence of Mr. Berlusconi — who attended a meeting of center-right parties in Brussels on Thursday — could destabilize markets.

Ms. Merkel praised Mr. Monti during a news conference on Friday, but she said it was not her role to endorse him as a potential candidate. “What Mario Monti and his government have done in recent months has greatly contributed to a growing confidence in Italy,” she said.

Ms. Merkel said she would “not interfere as the head of the German government in the question of who is a candidate in Italy and how the elections are structured there.”

Mr. Hollande also said he did not wish to interfere in Italian matters, though he did take a swipe at the former prime minister. “I don’t think Berlusconi is all that serious,” Mr. Hollande told journalists in Brussels. “With him, what’s true one day is not necessarily true the next.”

David Jolly contributed reporting from Paris.

Article source: http://www.nytimes.com/2012/12/15/business/global/european-leaders-back-banking-regulation-but-delay-further-measures.html?partner=rss&emc=rss