Euro crisis turning point: Two years of banking union

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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