Business

European Union opens summit buoyed by landmark bank deal

December 19, 2013

The European Union (EU) took a historic leap towards greater integration just hours ahead of a summit tomorrow, with a deal on a banking union aimed at preventing a repeat of the eurozone's crippling crises of the past.

German Chancellor Angela Merkel (pic), just beginning a fresh four-year mandate, will be closely watched at the summit for her reaction to the agreement, which marks one of the biggest transfers of national sovereignty to the bloc since the creation of its single currency.

The deal is expected to bolster her pledge ahead of the summit to, together with key partner France, build a stronger Europe.

Invigorated by a third term as leader of Europe's biggest economy, she has also signalled her determination to push through unpopular reforms to ensure the financial stability of the 28-nation bloc.

But the austerity she is preaching has not gone down well in the eurozone.

Thousands of people fed up with the public spending cuts protested early tomorrow ahead of the summit, setting pallets on fire and blocking key roads surrounding the EU's buildings in Brussels.

Just hours ahead of the summit, the EU's 28 member states thrashed out a landmark bank deal aimed at preventing a repeat of the crises that required public funds to stop failing banks from dragging down the economy.

The accord creates a single body to police and wind up ailing banks, backed up by a fund to cover the cost, all without using taxpayers' funds.

Eurozone member states drew the plan up after collapsing banks drove countries such as Ireland into costly international bailouts and brought the economy to a halt.

All 17 countries – soon to be 18 – sharing the single currency will be bound to the scheme while non-euro members have the option of joining.

French Finance Minister Pierre Moscovici called it "an accord that I believe is historic".

EU Financial Markets Commissioner Michel Barnier said: "We are producing revolutionary changes to Europe's banking system so that taxpayers will not foot the bill in banking crises, ending an era of massive bailouts."

Crucially, it will promote "financial stability... so that banks can lend to the real economy" again, helping produce much-needed growth and jobs, he said.

With fragile growth of just 1.1% and a stubbornly high unemployment rate of 12.2%, the eurozone is badly in search of a confidence boost.

Merkel set the stage for the summit with a pledge to strengthen Europe, alongside France.

"Together, we want to push Europe forward and make it a strong continent in the world," said Merkel today after a meeting with French President Francois Hollande in Paris.

To do so, she signalled she would press through change as necessary.

"We have a situation in Europe where Germany is often accused of resisting certain developments. This is not the case," she told the Bundestag lower house of parliament today.

"We are among those who say that we must, if treaties are no longer sufficient, develop those treaties... Those who want more Europe must be ready for new rules on some competencies."

Key among reforms championed by Germany is more centralised financial and economic governance in the EU, with members compelled to meet certain fiscal targets, even if this requires changes to EU treaties.

Hollande has rejected changing EU treaties, pushing for more pro-growth policies and less austerity within the existing European charters.

Beyond economics matters, the summit, which is nominally dedicated to defence issues, will also examine the crises in Syria and the Central African Republic.

Another issue is the EU-Russia tug-of-war over Ukraine, where tens of thousands of people have descended on the streets to protest Kiev's decision to ditch a trade deal with the bloc, turning instead to Russia to rescue its economy.

EU sources said the leaders were expected to issue a message of empathy with the people of Ukraine while reiterating the bloc's readiness to sign a partnership with the former Soviet state once it feels ready. – AFP, December 19, 2013.

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