The banking supervisor can “probably be effectively operational,” allowing the euro bailout fund to lend directly to banks as soon as 2013, EU President Herman Van Rompuy told reporters around 3:20 a.m. today after the first round of summit meetings. He said finance ministers will design rules for such bank rescues.
Merkel said the bank-oversight system needs to reach “practical completion” before direct aid becomes possible. She told reporters her nation would oppose any initiative to transfer recapitalization efforts from Spain to the euro area’s firewall fund.
“There won’t be a retroactive direct recapitalization, but once recapitalization is possible, it will be for recapitalizations that come in the future,” she said.
The EU has struggled to maintain the momentum of its June plan to spur investor confidence by putting the ECB in charge of lenders across the euro area and other nations that choose to sign on. Divisions have flared over the scope of the ECB’s authority and how losses would be shared.
Carsten Brzeski, an economist at at ING Groep NV in Brussels, said the “integration pace remains slow.”
“The new single supervisory mechanism will come, but direct bank recapitalization looks very unlikely any time soon,” he said. “Moreover, all other big-picture issues for deeper euro-zone integration remain schematic. Last night’s marathon session again illustrated how cumbersome and difficult the European decision-making process is.”
Rajoy wants the euro area’s firewall to inject cash directly into its ailing banks, to relieve it of the burden of paying back the bank-rescue loans, none of which has been disbursed. The prospect of direct bank rescues became less urgent after stress tests revealed that Spain’s lenders required less than half of the funds approved by euro-area states, a Spanish official told reporters in Brussels.