European Commission aims for takeover of all members’ banks

In a proposal that represents one the most significant surrenders of national sovereignty since the creation of the euro in 1999, the European Commission, the EU’s executive arm, wants to make the European Central Bank the single supervisor for all 6,000 banks in the 17 countries that use the currency.

Jose Manuel Barroso, the Commission’s president, warned countries would have to get used to handing over powers to Europe in order to solve the region’s debt problems.

“We cannot continue trying to solve European problems just with national solutions,” he said, adding: “A deep and genuine economic and monetary union ... means ultimately that the present European Union must evolve. And let’s not be afraid of the words. We will need to move toward a federation of nation states.”

His remarks go to the heart of the debate about the survival of the eurozone – whether countries can continue to share a common currency without a unified political system.

As part of forging a tighter EU, many observers and politicians have called for a banking union. The creation of a single bank supervisor is an important part of this plan.

Other measures being debated include: A European-wide system of depositors’ insurance; a single method for winding down bankrupt banks; and allowing the European bailout fund to directly help banks in trouble, instead of lending money only to governments.

In its proposal, the Commission called for the European Central Bank to take over supervisory roles from the member countries’ national banking regulators. Currently, the ECB is only in charge of monetary policy for eurozone countries – setting interest rates and printing money.

The plan would also give the ECB the ability to issue and revoke banking licences, approve large mergers and acquisitions, investigate banks and fine institutions that break the rules.

The Commission hopes its proposal will take effect on January 1 next year, first handing ECB power over the eurozone’s bigger banks and eventually adding the rest of the 17 countries’ lenders a year later.

Before taking effect, the proposal needs to be approved by the European Parliament and by the heads of government of the 27 EU states in the European Council.

It will be discussed by finance ministers of the 27 members, including Chancellor George Osborne, at the end of this week.