EU still walking tightrope

European Union leaders emerged in the early hours of Friday after 10 hours of summit talks wielding an agreement on a eurozone banking supervisor - but were still left facing a minefield on the way to solving their debt crisis. "Last night's marathon session again illustrated how cumbersome and difficult the European decision-making process is," said ING banking analyst Carsten Brzeski.
The "typical European compromise" had something for everyone, but little on substance, he said. The deal struck by the EU's 27 members stipulates that a legal framework for the banking watchdog should be in place by the end of the year, with the details hammered out during 2013. EU officials had wanted the mechanism in place by January 1. French President Francois Hollande, who had prioritised a speedy implementation over Germany's slow, meticulous approach, said Europe could now "act as quickly as possible, with the best possible level of supervision." "Europe is not a battle between good and bad," said Spanish Prime Minister Mariano Rajoy, insisting there had been no showdown between the French and German approach. "Europe is not about winners or losers."
After the 27 leaders found common ground, the eurozone's 17 finance ministers must now get into action on the nitty, and very gritty, detail. The timing of the implementation stages could prove crucial for German Chancellor Angela Merkel, who is gearing up to defend her track record in a general election in a year's time. "I think the worst is over, but we have not finished because we have to recreate confidence and rediscover growth," Hollande said. The financial markets have granted the eurozone some respite in recent months, but only out of faith that it will settle its differences and breathe life into the promised banking supervisor.
Outstanding issues include the speed and scope of implementation, the balance of powers between the 17 eurozone members and the rest of the EU, and the tricky question of when the eurozone's bailout fund - the European Stability Mechanism - will be able to start directly channeling aid to banks. This step is considered key to decoupling the sovereign debt crisis from the banking crisis, and restoring investors' faith in the eurozone.
Marianne Thyssen, the European Parliament's rapporteur on banking supervision and a conservative lawmaker, said speed was of the essence. "We need to work thoroughly but rapidly and reach final decisions ... as soon as possible. The crisis won't wait for politics," she said.
Beyond banking supervision, the leaders gave lofty pledges to a stronger, integrated EU - envisaging full banking union, a future fiscal union and some form of euro area funding capacity. This roadmap made "significant progress - on paper," wrote Barclays Bank in a note to investors. Meanwhile, a German proposal for a beefed-up EU monetary commissioner with greater power over national budgets found no resonance among EU leaders at the summit.
Guy Verhofstadt, the leader of the liberal faction in parliament, said the creation of mutualized European debt - a concept most frequently associated with eurobonds and which is an anathema to Berlin - was the only way to stabilise the currency in the long term. "We are asking that Greeks, Spaniards or Italians make extraordinary efforts, but if their sacrifice serves only to pay high interest rates, it is totally pointless," the former Belgian premier said.
Politicians said that another area where action has lagged behind EU pledges is on efforts to stimulate growth and job creation. EU President Herman Van Rompuy said economic indicators were showing positive signs of eurozone stability, referring in particular to falling borrowing costs - "the best sign of a certain lull."
"But you have to recognise that when you talk about growth and employment, ... huge progress remains to be made," he added, calling the situation "worrying." The summit avoided the one issue touted as the largest stumbling block in coming months: the EU's next six-year budget.
The so-called Multiannual Financial Framework (MFF) traditionally divides member states into those who rely on EU aid, and those who seek to reduce their payments into the block's pot - notably Britain, which is threatening to block negotiations at a summit next month. "It just would not be acceptable to see a huge increase in EU spending at a time when other budgets are being cut," British Prime Minister David Cameron said. Asked if he would use his veto, he said: "The short answer is: Yes."
Britain, which has opted out of the euro, is seeking to renegotiate its EU membership and could hold a referendum on the issue. But Cameron denied that he was seeking to withdraw entirely from the bloc. "We're realists about the EU, we have a realistic, gritty debate - that's what we're like as a people," he said.