- Leaders of the European Union agreed to a deal for a eurozone-wide banking supervisor
- Timetable set for legal framework by January for implementation sometime in 2013
- Group applauded efforts of Greece but reaffirmed the need to continue austerity measures
- Van Rompuy: "Without a stable monetary union there cannot be a stable European Union"
Leaders of the European Union in Brussels have agreed Thursday to a deal for a eurozone-wide banking supervisor in 2013 that is designed to help prevent future catastrophic bank failures that could threaten the monetary union.
The agreement sets the stage for development of a legal framework to allow the European Central Bank to give emergency funds to ailing banks directly without going through national governments -- bailouts which, in turn, have required bailouts for the nations themselves, as was seen in Greece and Ireland.
The move is necessary to "break the vicious circle between banks and sovereigns," said European Council President Herman Van Rompuy in a press conference early Friday. "Next hurdle to set up a single supervisory mechanism to prevent banking risks and cross-border contagion from emerging ... built with the integrity of the single market in mind."
The leaders set a goal of approving the legislative framework by January 1, with the new supervisory mechanism "operational in the course of 2013," Van Rompuy said.
The group also released a statement on the progress of Greece toward meeting budget cuts required to qualify for the next round of bailout payments, applauding "the determination of the Greek government to deliver on its commitments" and "remarkable efforts by the Greek people" while underlining the need for continued fiscal reform.
"This is necessary in order to bring about a more competitive private sector, private investment and an effective public sector," read a statement from the European leaders. "These conditions will allow Greece to achieve renewed growth and will ensure its future in the euro area."
Greece is one of 17 nations united under the single euro currency. Its debt woes sparked an existential crisis for the eurozone, underlining the gulf between monetary unity and fiscal unity among its members. The Brussels summit aims to help bridge that gap with banking sector reforms and more integrated budget policies.
"Without a stable monetary union there cannot be a stable European Union therefore the goal is to make the euro fully stable economically, financially and also politically," Van Rompuy said.
Athens must cut $17 billion from its budget in order to receive the next $41 billon tranche of bailout money it needs to keep from defaulting. The troika of the European Central Bank, International Monetary Fund and the European Commission overseeing the bailout left Athens for the Brussels summit without an agreement in place.
The summit started Thursday as tens of thousands of people rallied across Greece to protest further tough austerity measures, [and] as a general strike shut down much of the country's transportation network. Clashes broke out in Athens after protesters threw stones and bottles at police. Greece is in its fifth year of recession and has seen its unemployment rate soar to more than 25%.
The debt crisis in eurozone nations like Greece, Ireland and Portugal threatened to envelope the larger economies of Spain and Italy, which both saw their borrowing costs rise to dangerously high levels earlier this year. Market pressure has eased on Spain and Italy after the European Central Bank said in September it was ready to buy potentially unlimited amounts of sovereign debt.
The summit of European leaders continues on Friday in Brussels.
European Commission President José Manuel Barroso said the the next step is to provide "clear long-term vision for economic and monetary union.
"The Commission will set out its thinking in a few weeks' time in a blueprint for economic and monetary union," Barroso said. "The Commission is a strong advocate of deeper integration, in particular for the euro area. This is urgent."