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Spain’s bank bailout step toward further EU integration

06-12-2012 10:56 BJT

Spain’s bank bailout is widely being seen as a step toward further EU integration. The conditions attached to the loan will not only involve supervision by the European Central Bank, the EU Commission and the International Monetary fund, Spain also will have to commit to banking resolution demands from Brussels.

As Eurozone leaders patch together solutions to the debt crisis, calls are growing louder for a more long-term plan to secure the future of the single currency. One answer, many EU leaders say, is more economic integration instead of less; and some are pointing to Spain’s bailout as a model for how it should be done.

The Spanish government will have to agree to the EU’s terms for a bailout and Spain’s banks bound to banking policy from Brussels. In other words, the first step toward a European banking Union - where instruments like deposit insurance, and crisis management would be coordinated under a single authority.”

It seemed a far-away and perhaps far-fetched concept in June last year, when former ECB President, Jean Claude Trichet, first proposed the idea of a Finance Minister to govern the entire Euro Area. But decision-makers, keen to break a vicious lending cycle between banks and governments in trouble, are warming to the idea of direct intervention through the creation of new powers with access to EU funds.

It would also be a closer move toward the level of economic integration that German Chancellor Angela Merkel has long championed. German Chancellor Angela Merkel says, “I believe it is necessary for those countries which are part of the common currency to deepen their cooperation, as we are doing with the fiscal pact, and as we need to do in the future, taking further measures - always keeping in mind that our common market is what unifies us.”

But Germany has been apprehensive about creating a banking union that would provide cross border deposit guarantees and issue eurobonds - without creating a fiscal policy for the eurozone first.

Guntram Wulff, Deputy Director Bruegel says, “Ideally you would create a fiscal union and then as a subsection of that fiscal union you would create a banking union, now looking at the economic realities in which we live, it is clear that the banking systems in a number of countries is in pretty bad shape and some action is needed so I think that’s why we’re having this strong discussion on banking union now.”

Leaders are expected to talk "fiscal union" at a summit in Brussels later this month, but achieving political consensus in addressing an immediate banking crisis will prove a serious challenge. “The Commission's banking union proposal will be hotly negotiated- but with countries like Greece, Spain and Italy still threatening stability, many fear the Eurozone needs to make tough decisions about its future, now.

Editor:James |Source: CNTV

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