European leaders are scheduled to meet in Brussels today for a two-day summit, but early reports have revealed deep and uncomfortable divisions over a proposed banking union that is intended to underpin the eurozone.
In particular, member states are divided over the timeline and scope of the banking union.
In a radical policy shift, the European Commission had in May called for the creation of a banking union that can centrally oversee and if necessary bailout the banking sector without having to go through national governments.
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The European Union's executive Commission, the European Central Bank and several EU nations such as Spain and France would like to see the new system in place on January 1 but German reluctance has led diplomats involved in detailed talks to become doubtful that a deal is possible before year's end.
"One (diplomat) noted Berlin was still sending mid-level officials to talks on the single supervisor; others suggested talks could run for a year or more," reported the Financial Times.
According to a German official who spoke on the Associated Press on the condition of anonymity, many "legal, technical and political details" for a continent-wide supervisory body still have to be hammered out.
Germany, while advocating greater fiscal control, is urging caution, with Chancellor Angela Merkel repeatedly stressing that "quality must trump speed".
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However, without concrete action by year's end, some EU officials fear hard-fought credibility gained with investors over the past four months could be lost.
Concerned that the recent market calm has sucked the urgency out of the plan, a senior French official told the FT:
If we say we are going to do something, we should implement it. That has been one of our problems. It is an issue of credibility. We need to break the vicious circle of sovereign risk and banking risk. Why should we wait?"
European leaders will no doubt try to narrow their differences at the summit that begins on Thursday but no breakthrough will be expected from the talks as the agenda is focused instead on longer term efforts to retool the regions banks and economies.
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