Not a Nobel Prize Winners’ Summit From the EU

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By Marc Champion

On a day when Greeks with jobs went on strike and battled police in the streets of Athens, European Union leaders last night came up with a deal to get started, at least, on a banking union.

That's effectively what the 27 EU leaders agreed in Brussels, after a summit that lasted almost to dawn. They deserve a C+ grade for the effort, which by their standards was pretty fast work, but -- as we've shown before -- is much too slow and limited to resolve the euro crisis safely.

You can see why so many people were skeptical about the EU receiving the Nobel Peace Prize. The prime ministers and presidents also argued at the summit over how many people should go to collect the award.

Still, the history of the EU looks more like rugby than American football: It's a game of muddy scrums and short passes. But someone, somehow, usually scores and this was a move forward.

The empty structure for a European banking union will be put in place by Jan. 1, with details to come and operations to start sometime during the year. Let's guess that will be after German Chancellor Angela Merkel has secured re-election in the fall.

Put aside were the harder questions of when the European Stability Mechanism can begin to directly recapitalize troubled euro-zone banks (Merkel insists that has to wait until the supervisory function is resolved), and increased euro-area control over government budgets (French President Francois Hollande says that has to come later, or better not at all).

As usual, everybody got a little bit of something, or at least all the big countries did: France got German agreement to at least start quickly on the construction of a banking union; Germany got French agreement to kick the issue of direct bank recapitalization down the road; and the U.K. got a fuzzy reassurance that the new euro-area banking structures won't be used to disadvantage London. You could detect the U.K. language on that: The statement talked about ensuring "a level playing field" for the single market and financial services outside, as well as inside, the euro area.

Greece also got some praise for trying harder to reduce its budget deficits, and an agreement to keep its economy on life support seems imminent. It's unlikely, though, that EU praise will console the protesters in Athens. Spain, meanwhile, got very little -- beyond falling bond yields in early trading as markets breathed a sigh of relief that the summit at least didn't break down in failure.

(Marc Champion is a member of Bloomberg View's editorial board. Follow him on Twitter.)

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-0- Oct/26/2012 19:31 GMT