Wall Street Journal
July 14, 2013
Almost four years since the start of the euro-zone crisis, a moment of truth is approaching. The creation of a banking union is the centerpiece of the currency bloc's efforts to draw a line under its debt problems, an attempt to address the splintering of the European single market that threatens to pull the euro zone apart.
Critics who argue that progress has been too slow underestimate the scale of what is being undertaken. The creation of a single European rule book incorporating the new Basel III rules, the establishment of the Single Supervisory Mechanism to oversee the euro area's 6,000 credit institutions, and the agreement last month of common rules to deal with failed banks are substantial achievements involving significant transfers of sovereignty.
Sure, what has been achieved so far is not perfect. The new rules contain multiple opt-outs, special treatments and scope for national discretion—weaknesses highlighted by investors, foreign governments and the Basel Committee itself.
Perhaps that's inevitable in a currency bloc of 18 members—and a wider European Union of 28 member states—each with unique financial systems that have evolved over decades, shaped by past crises, long-standing tax incentives, the structure of their economies and trust in domestic institutions. But that makes it even more important that not only does the new supervisor, which will be based at the European Central Bank, apply the rules transparently and robustly but that its judgments are swiftly implemented.
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