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EU's Barroso unveils banking union plans

The EU has taken fresh steps in its controversial journey towards closer economic and fiscal union. The plans, unveiled by European Commission President Jose Barroso, are likely to unnerve wary member states.

Europe inched closer to a banking union on Wednesday, after Barroso voiced plans for the European Central Bank (ECB) to police the region's financial lending firms.

During his annual "state of the union" address to the European Parliament, Barroso detailed his proposal, which ultimately aims to bolster economic and fiscal integration in Europe and safeguard the future of the single currency.

"The crisis has shown that while banks became transnational, rules and oversight remained national," Barroso said. "We need to move to common supervisory decisions, namely within the euro area."

"The single supervisory mechanism proposed today will create a reinforced architecture, with a core role for the European Central Bank ... It will be a supervision for all euro area banks," he added

"The present EU must evolve," the EU figurehead also said. He expanded that the federation was necessary "because I think in these times of anxiety, it is a mistake to leave nations to nationalism and populism".

The banking union reforms have three main aspects: The ECB will attain power to monitor all banks operating in the euro zone and other parts of the EU. A fund will be established to aid struggling banks in the region. A scheme to protect banking client deposits in the eurozone also forms part of the plans.

The measures will be subject to approval by EU member states. Each country will have to agree to cede a degree of sovereignty over national banking supervision. That reality has sparked tensions in Germany and Great Britain.

sej/ccp (Reuters, AFP)