European Commission President José Manuel Barroso offered few surprises in his speech on the State of the Union as he focused on the need for greater integration amidst the EU members and, quite ironically, made a call for 'action, not words' and insisted on the need for 'credibility'.

Headlines will of course abound. "We can't solve European problems with national solutions" or "I call today for a federation of nation states, not a super state" will probably be amidst the most quoted.

In any case, Barroso did little but to repeat the need for fiscal union and to convince the markets of the - you guessed it - "irreversibility of the euro".

ECB AS SUPREME BANK SUPERVISOR

At the same time, the Commission did present some details of the proposal for the banking union and nominates the European Central Bank (ECB) to be the sole supervisor, although with the help of national supervisors. The creation of the "single supervisory mechanism (SSM)" for banks in the Eurozone is hoped to be adopted "by the end of 2012."

"This new system, with the European Central Bank at the core and involving national supervisors, will restore confidence in the supervision of all banks in the euro area. The European Parliament will have a crucial role to play in ensuring democratic oversight. We should make it a top priority to get the European supervisor in place by the start of next year," Barroso said.

The main responsibilities of the ECB will be those that are "key to preserving financial stability and detecting viability risks of banks." The European Banking Authority (EBA) will continue its current role in regulating capital requirements for the 27 member states of the European Union.

As far as the timeframe is concerned, the Commission hopes to have the SSM in place by January 1st of next year. Then according to the proposal, "as a first step, as of January 1, 2013, the ECB will be able to decide to assume full supervisory responsibility over any credit institution, particularly those which have received or requested public funding. As of July 1, 2013 all banks of major systemic importance will be put under the supervision of the ECB. The phasing-in period should be completed by January 1, 2014 when the SSM will cover all banks."

JM

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