ASSESSMENTS

Europe's Small Steps Toward a Banking Union

Sep 16, 2013 | 15:36 GMT

Europe's Small Steps Toward a Banking Union
EU Commission President Jose Manuel Barroso speaks at a May 7 conference on integration.

(GEORGES GOBET/AFP/Getty Images)

Summary

The European Union has increased supervision of banks in an effort to strengthen the troubled banking sector, but it still must deal with contentious issues such as the centralization of power to identify and fund struggling banks.

The European Parliament on Sept. 12 approved legislation necessary to implement the first stage of a banking union. The legislation involves the European Central Bank taking over as the single supervisor of large eurozone banks in late 2014. (Countries that are not in the currency union are free to join but are not required to.) Central oversight of eurozone banks' balance sheets is expected to make the identification of problems in the banking sector easier. Compromises on centralization are likely after Germany's elections on Sept. 22, but political agreements on the next steps of the banking union will be slow and implementation arduous.

The effectiveness of the union is likely limited because of Brussels' perennial enforcement deficiency....

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