Euro Zone ministers met in Brussels today to discuss plans for a banking union.
At the meeting France, Spain and Portugal called for quick progress on the issue while Germany pointed out that treaty change might be needed before plans could be completed.
Under the plan, the biggest banks will be supervised by the European Central Bank from the middle of next year. There is also to be a single bank resolution mechanism that would wind down insolvent banks and a common deposit guarantee scheme.
But while the ECB bank supervision looks set to take effect as planned, the single authority that would order and finance the closure of a bank is unlikely to materialise soon, because Germany believes it needs a change to the EU treaty.
The issue is divisive because a change to the European Union treaty could take years and entails risks — the revised law could be rejected in one of the 27 national EU parliaments during ratification.
Some policy-makers believe Germany is demanding treaty change to push the discussion on bank resolution back until after its parliamentary elections in September, in which Chancellor Angela Merkel will have to deal with rising popular discontent with bailing out euro zone banks and governments.
153 lawmakers in Greece have narrowly backed a fresh round of austerity measures aimed at securing the next round of bailout funds despite violent protests across the country.
The bill which includes tax rises and pension cuts is about 13.5 billion Euros and must be revised before Eurozone finance ministers meet next week to approve 31.5bn euros in fresh loans from the European Union and the International Monetary Fund.
Before the vote on Wednesday, Prime Minister Antonis Samaras warned that without the bailout Greece would run out of money this month and face “catastrophe”.
The austerity package – Greece’s fourth in three years – is meant to close the nation’s budget deficit, lower its huge debt burden and make its economy more competitive.
MPs must now pass a revised budget on Sunday before Eurozone finance ministers meet next week to approve 31.5bn Euros in fresh loans from the European Union (EU) and the International Monetary Fund (IMF) that Greece needs to avoid imminent bankruptcy.
But the level of resistance on the streets is a reminder that implementing the latest tough measures will be extraordinarily difficult.
British Prime Minister, David Cameron on Friday said the UK would not join a new European treaty set up to prevent future crisis from happening again, because EU leaders had not been able to give him the guarantees he had been looking for.
After a marathon meeting that started on Thursday evening and finished at 0600 am on Friday, euro zone member states agreed to create an intergovernmental treaty to forge stricter budgetary controls for the groups member states. But Britain decided to stay out of it.
“I said before coming to Brussels, that if I could not get adequate safeguards for Britain in a new European treaty, then I would not agree to it. What is on offer is not in Britain’s interest, so I didn’t agree to it.
“Let me explain why this matters, of course we want the euro zone countries to come together and to solve their problems, but we should only allow that to open inside the European Union treaties, if there are proper protections for the single market and for other British key interests. Without those safeguards it is better not to have a treaty, but to have those countries make their arrangements separately. That is now what is going to happen,” Cameron said.
Under pressure from conservative eurosceptics back home, Cameron had hoped to win concessions in change of treaty change, namely protection of any rules that could hurt its financial centre London.
“The difference between the in and the outs, those in the euro and those out of the euro has inevitably created tensions within the European Union. Now, there are arrangements within the European treaties to allow different countries to do different things, but these have always been accompanied by adequate safeguards within the treaties. When we can not be given those safeguards in the treaty it is better this is done by intergovernmental arrangements outside the treaty and outside the institutions of the European Union,” Cameron said.
European leaders were holding their eighth crisis summit this year in an attempt to finally stop a sovereign debt crisis that started two years ago in Greece and is now threatening the survival of the single currency.
While Germany and France have been pushing for more fiscal unity and integration between the member states as the only way to prevent future crisises from happening, Cameron said it was better for Britian to have a lose relation with the single currency bloc.
“And so I think the idea of Europe being more of a network where you chose the organisations you join and you chose those organisations you don’t join, is actually a way that Britain can get what we want and what we need.”