Rather overshadowed by the debate on migration, the EU summit nevertheless also took a significant step towards reforming and strengthening the euro system.
Euro zone leaders, meeting with aspirant euro members – 27 in all, formally agreed to the creation of a “backstop” defence for the union’s banking rescue system, the Single Resolution Fund (SRF).
In the event that the SRF were to be overwhelmed by the collapse and necessary rescue of a too-big-to-fail bank, the European Stability Mechanism, the rescue vehicle for bailing out member states in trouble, will be able to step in with cash as a lender of last resort. The ESM will be given the capacity to borrow up to €80 billion for the purpose.
The move is seen as reassuring the markets and investors that the EU banking system is capable of withstanding even the most adverse economic winds and systemic shocks.
Banking union
Legislation will be prepared by December, when it is hoped the final banking union package will be agreed.
An enhanced ESM, possibly renamed the European Monetary Fund, will also take a stronger role in designing and monitoring programmes in member states, in close co-operation with the European Commission and in liaison with the European Central Bank.
The summit also agreed to set in train further work – without committing the EU in principle – "on a roadmap for beginning political negotiations" on a controversial European deposit insurance scheme, which is opposed by Germany, and on issues raised in a recent Franco-German paper. Among the latter most notably is the idea of a fiscal capacity for the euro, and hence a euro zone budget, to protect member states against so-called asymmetric shocks.
