The New York Times article today, “Leaders Say the They Expect Agreement on Aid for Spanish Banks This Year.” called leaders decision-making as “creeping urgency”. So where are European Leaders? Well kinda where they were months ago. Leaders have agreed to set up a Eurozone bank supervisor, among other things, but the current agreement leaves unclear when the new bank supervisor will be fully in place. That is critically important because without the bank supervisor in place, European Stability Mechanism (ESM) funds will not be available to struggling banks, especially in Spain. So while the EU leaders will seek to “spin” the agreement as success, the lack of clarity around the regulatory startup is trouble.
And why is the date for the start of this new banking supervisor still so unclear? Well, the problem is a German election in 2013 where German Chancellor Merkel doesn’t want to have to defend the use of ESM funds directly to the sagging banking sector in Spain. So while the European Commission urged that the banking supervisor be up and operating by the start of the year – January 2013, it is pretty evident that European politics will not permit that. So some of Europe’s most fragile banks are unlikely to be under this new European supervisor. In fact Germany has insisted that the extension of regulation of Eurozone banks be done in stages. That too appears to be a product of national politics. The German local and state banks are not eager to be regulated by this new ECB bank supervisor.
And the determination to bring Greece into line in a austerity program that is well off track appears to have made no progress either. And there other supervisory and budgetary issues that EU leaders have been unable to resolve.
Notwithstanding the “comforting” words of leaders in the Eurozone, the bank supervisory issue – that was generally perceived by officials and observers to be reasonably straightforward – is being delayed. Leaders have to be assuming – at least hoping – that global markets will not render their own judgment on the failure of Eurozone leaders to resolve the continuing sovereign and banking debt issues. That kind of gamble well may not pay off.
The only good thing that may arise from this lack of collective political will is that there is no immediate prospect of a G20 Leaders meeting. Att least at the moment G20 leaders are not to gather until September 2013 though finance ministers and central bankers will gather well before this. If such a summit were planned we could once again witness an agenda largely hijacked by Europe’s apparent determination not to take the necessary action to resolve the debt issues stalking at least Europe.
Meanwhile watch global markets!
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