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Banking Union: First Step to Two-Speed Europe?

Thursday, 13 Dec 2012 | 6:33 AM ET
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The European Central Bank's new powers as a banking regulator may end up being all the more powerful for what they symbolize – the solidifying of the separation of European Union countries into two camps.

Of course, since its inception the single currency has divided the EU into those which took on and avoided the new coinage.

Yet since the euro zone crisis, the potential for a "two-speed Europe" has moved closer towards reality. Jean-Claude Piris, one of the architects of the EU, argued that it should move towards an "inner core" of countries which are more closely integrated in his book The Future of Europe, published in late 2011.

The extra powers granted to the ECB to regulate the area's biggest banks, agreed in the early hours of Thursday morning after months of tense negotiations, will be a key part of creating that core. The concessions granted to countries like the U.K. and Sweden, which are not currently part of the single currency, could set the tone for future negotiations between this core and the countries which want to remain part of the EU, but not part of the new euro zone institutions.

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"It seems that the U.K. came very close to the outcome it wanted, and it's good that they managed to secure this," Raoul Ruparel, head of economic research at London-based think tank Open Europe, told CNBC.

"Both sides seem to agree that they need a workable solution to keeping the U.K. in the EU."

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The U.K. and Sweden seemed to be happy with concessions won on the concept of a "double majority" – which would mean that the ten countries outside the euro zone, but inside the EU, still have power to influence banking rules. The ECB has also promised not to discriminate against non-euro zone banks, which is particularly important for the UK, with its large financial sector.

"It remains to be seen whether that compromise is sufficiently credible, legally robust and effective so as to establish a system of common supervision of banks which will lead to a further agreement that there should be common fiscal responsibility for the banks within the single supervisory mechanism," Alexandria Carr, counsel at law firm Mayer Brown, warned.

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The new proposals have generally been well received as a way of stabilizing Europe's troubled banking sector.

"No bank is untied to another. Leaving those banks to sort themselves out for a while has made the situation worse, and the cost to Europe greater," Vicky Pryce, senior managing director at FTI Consulting, told CNBC.

"The ECB is going to have to intervene a lot more aggressively, possibly quantitative easing on a large scale, particularly once it takes over as the regulator."

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