Will EU Meet This Banking Deadline?

German Chancellor Angela Merkel expressed some doubts that Europe would be able to establish a central bank supervisor for the region before the end of the year, a deadline policymakers set themselves on Friday. Germany has maintained that the zone needs to iron out all issues before establishing the entity that was envisioned with the aim of slowing down the region’s debt crisis.

“There are complicated questions to clarify and we’ll see in December if we complete it or not,” Merkel said. “For now, the political will is there.”

The European Union summit in Brussels ended on Friday after two days of talks on the banking union’s structure. Merkel and French President Francois Hollande had earlier discussed its workings before all the chiefs convened. The 27 EU leaders decided that the European Central Bank would become the currency zone’s main financial supervisor by January 1 and the system, set to be established in phases, could cover all 6,000 euro-area banks by January 1, 2014.

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EU President Herman Van Rompuy said that the supervisory banking union could “probably be effectively operational” next year, allowing the bailout fund to lend directly to banks such as troubled Spain’s. However, Merkel ruled out allowing Spain to shift bank-bailout loans off its balance sheet if they are made before the new system starts operating, according to Bloomberg. The German Chancellor added that said she would oppose any initiative to transfer recapitalization efforts from Spain to the euro area’s firewall fund.

“There won’t be a retroactive direct recapitalization, but once recapitalization is possible, it will be for recapitalizations that come in the future,” she said.

The European Union has seen differences over the scope of the ECB’s authority and how losses would be shared since it decided in June to put the bank in charge of lenders across the region with the aim of spurring investor confidence.

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