European leaders have settled on a compromise to have a legal framework for a single bank supervisor ready by January 1st 2013.

Once again, it appeared that German Chancellor Angela Merkel was setting the tone for the further development of the European Union (EU) project aimed at strengthening the region and getting out of the crisis. Merkel is content to wait for 2014 to have a banking union.

At the European Summit that began on Thursday, Merkel indirectly dismissed French President Francois Hollande's call for a banking union to be established as soon as possible in order to contribute to direct bank recapitalisation.

Nonetheless, European leaders have agreed to prepare the legal framework for bank supervision by the end of the year in order to begin implementation in 2013. This decision does not fare well for Spain, who will not be able to count on the support of the European Stability Mechanism for its bank bailout.

Some of the main messages given by European leaders:

Francois Hollande (French President):

- He said that the EU must continue to work to recover confidence and restore growth. He said that the worst of the crisis has been left behind.

- Europe did not postpone the banking union, it sped up the agenda set up in June.

- Spain's situation was not discussed at the Summit.

- France and Germany have a common responsibility, which is to get out of this crisis.

- The issue being tackled is the banking union, not so much fiscal union. The former must be configured by the end of the year.

Angela Merkel (German Chancellor):

- Legislation for bank supervision will be established in 2013.

- Bank supervision must be complete before considering direct recapitalisation. More policy coordination needed. Interpration of some measures should be done through a mechanism of solidarity.

- On banking union, must work quicker but also more meticulously.

Jose Manuel Barroso (European Commission President):

- A single supervision mechanism is urgent in order to prevent the banking crisis and its contagion, which means that legislation should be ready by January 1st 2013. That way, it can become operational within the next year.

Jean-Claude Juncker (Eurogroup President):

- Spanish bank recapitalisation is an important matter for Spain and the Eurozone. A decision in this area will be made in a few weeks.

Jyrki Katainen (Finnish Prime Minister):

- The important thing is to separate bank risk from sovereign risk.

SB

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