Shortly before this week's EU summit, finance ministers are once again tackling the issue of how to create an effective banking union. Agreement on a common supervisory body would be a good place to start.
If nothing else, the debt crisis in the eurozone has revealed that the currency union needs a banking union. At least, that's what leaders decided at an EU summit in Brussels in June.
The first step to a common banking union for Europeans is creating a shared banking supervisory body. Then, when emergency strikes, it needs to have money to jump in and make loans to ailing banks. It also needs a process to allow banks to go bankrupt in an orderly fashion, which requires a common fund for banks with which they secure each other's deposits.
There are such methods to steer banks in some of the European Union nations, but not in all of them. The EU would like to see the system centrally organized, since 27 different regulatory bodies are less effective and independent than a European supervisory body would be.
Not over the hill yet
The roadmap to banking supervision by the end of 2013, agreed to at the EU summit in October, is only the first step on a long road toward a full banking union, according to Janis Emmanouilidis, political analyst at the European Policy Center in Brussels.
"That does not mean that we're over the hill yet," he told DW. "The main issue is going to be dealing with the fundamental deficits in the economic and currency union - the imbalance between a currency union and an unfinished economic union. That work has been started, but it is certainly going to take longer. So is implementing it."
German Chancellor Angela Merkel also said the banking union is far from finished.
"When we have the banking supervisory body and if we want to be able to directly recapitalize banks then, of course, we need a processing fund for banks that is also made up of contributions from the banks," she said. "There is still work to be done."
Banks themselves should pay into the processing fund and another fund to guarantee deposits, but the creation of these funds could take years. Consolidating guarantees offered by each member state is another way the EU could ensure bank customers' savings. But so far the German government has been against using Bavarians' money to cover the savings of a bankrupt Andalusian bank.
Unionfor stable banks
By 2014, the banking union will consist of all 6,000 banks in the European Union. There is, however, debate over which banks would fall under the regulatory pervue of the supervisory board: should it include only the healthy, solvent lenders, or the ailing banks too, including those that misjudged investments in Spain, Ireland, Slovenia and Greece?
Emmanouilidis sees plenty of potential conflicts brewing. "Key players like Germany, Finland and the Netherlands have said that support made directly to banks will only be provided to the banks that get into trouble in the future - not the ones already in trouble," he said. "They're trying to separate old problems from future problems. There is a serious discussion going on with paying countries like Germany, Finland and the Netherlands on one side and potential receiving countries like Spain on the other."
'It takes time'
Spainand Italy actually pushed for their banks to be recapitalized quickly by the European Stability Mechanism (ESM) as soon as the banking union was set up. But that won't take place for another year, according to Merkel. First the European Central Bank needs to create a new body with hundreds of employees, she added.
"Just looking at the practical process, it is absolutely clear that this is not going to take place in a month and a half," Merkel said. "That is why we simply said that it needs to be a good, functioning system. It needs to have a clear value on top of what we already have today."
A series of legal questions need to be addressed before the banking supervisory body can take over and the EU can take the next steps toward forming the banking union. How can the ECB clearly separate its roles as the new supervisory body and its existing monetary policy task? How will countries outside the eurozone participate in the banking union? What court and parliament will provide checks and balances to the decisions made by the banking regulator? Britain and Denmark are also special cases of their own. These two EU members have no desire to introduce the euro but still want to take part in the banking union. Britain wants to keep regulatory power over its banks and does not want to see its financial hub in London weakened.
Georg Fahrenschon, president of the German Savings Bank Association, was skeptical of the idea of a banking union. He has pushed for publicly held banks to be held to a different standard since they do not take on as much risk as private lenders. He also fears what too much micro-management from what he called a "huge government agency that's not fit to do its job."