European leaders will promise to complete the EU’s banking union in the future, but will leave it to their finance ministers to work out when, their draft conclusions showed.
Completion of the banking union, which would mean setting up a controversial common deposit insurance scheme, would sharply reduce the possibility of a major banking crisis. This is in the 19 countries that shares the euro and in this way boost market confidence in the euro and demand for the currency. But the thing is that, the issue is highly sensitive in many euro zone countries. Euro zone finance ministers with their non-euro colleagues from other EU countries have been stuck trying to agree on the deposit guarantee scheme.
The draft says that they reiterate their full commitment to the completion of the Banking Union and capitalizing on recent discussions, invite (EU finance ministers) to agree, without delay and on a consensual basis, on a stepwise and time-bound work plan on all outstanding elements needed to complete the Banking Union. The EU-wide deposit guarantee is the main element. This is because there already is a single bank supervisor and a single resolution mechanism for banks that fail. The European Deposit Insurance Scheme (EDIS) is known as the common EU deposit protection. Before this it is agreed, Germany and some other countries say other problems have to be cleared up.
While the ratio of bad loans has been falling steadily in the euro zone, in some countries for Berlin’s liking it is still high. Limits on the amount of bonds of a single sovereign that a bank is to hold, are hard to swallow for Italy. Euro zone officials said that there is no progress on any of the topics is likely before German parliamentary elections in late September. But even with a new German government, the progress will be hard.