The ECB Gets Power Over the Banks

Europe took a big step on Dec. 13, when European Union finance ministers, meeting in Brussels, agreed to put major banks in the euro currency zone under the supervision of the European Central Bank. The move will allow a euro-zone firewall fund to provide direct bailouts to banks, breaking the so-called doom loop in which national governments’ debt ratings are dragged down when they try to aid troubled lenders.

But, as so often happens in Europe, politics trumped speed. The new arrangement won’t be in place before March 2014. Why not sooner? German Chancellor Angela Merkel is seeking a third term in elections next September—and Germany, the major underwriter of hundreds of billions in loans already provided to ailing euro-zone economies, would certainly pay the lion’s share of bank bailouts as well. By delaying implementation, “Germany probably has managed to keep discussion of these measures off its 2013 election campaign,” Citigroup economist Jürgen Michaels wrote in a research note after the decision.