The banking union will also profoundly reshape and realign Europe’s financial system and institutions, with consequences that will unfold gradually.
The summit declaration establishing Europe’s banking union made three points: the intent “to break the vicious circle between banks and sovereigns”; the integration of banking supervision within the ECB; and a suggestion that the European Stability Mechanism (ESM), the euro area’s common fund, would be allowed to recapitalize banks directly under certain conditions.
A banking union is no panacea. The ECB could still be less than rigorous in its bank review this year, which would squander the opportunity to restore trust. . Two years ago, and for lack of alternative options, Europe’s leaders avoided their usual muddling through complacency to do something radical — and it worked. They may need to muster such stamina again.
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