European finance ministers struck a major new deal over their debt crisis. They agreed that the European Central Bank -- Europe’s equivalent of the Fed -- should take over the supervision of the continent’s biggest banks.
Under the deal the ECB will directly regulate the top 200 banks in the 17 countries that use the euro. This will give the Frankfurt-based institution the power to shut down those banks if they break the rules, by -- for example -- engaging in risky lending.
The new measures will pave the way for the euro zone bailout fund to pump money directly into struggling banks.
Christian Schultz of the German Bank Berenberg says this is without doubt an historic agreement. “It will make countries even more interdependent. Countries’ largest banks, when they fail, can be saved by the euro zone as a whole. So it’s a big step towards more integration," says Schultz.
But he argues this will not end the current crisis. The measures won’t take effect until the year after next, and member countries -- including Germany -- can veto any bank bailout.
The Germans have the deepest pockets but they are extremely reluctant to bankroll what they regard as irresponsible behavior by their southern neighbors.