The "banking union" deal was announced, without the publication of detailed legal texts setting out how new structures would work, in the early hours of Thursday morning just ahead of an EU summit after talks between European finance ministers that lasted over 12 hours.
"We have been successful," said Rimantas Sadzius, Lithuania's finance minister, who chaired the talks. "It is an extremely complicated dossier. There is still room for simplification."
Michel Barnier, the French EU commissioner, hailed the agreement as breaking the "vicious circle between banks and sovereigns" but acknowledged concerns over the complexity of the new structures.
"Today is a big momentous day for banking union...we are introducing revolutionary change to Europe's finance sector," he said. "The commission does not agree on every point but real progress has been made."
Negotiations focused on the creation of a eurozone Single Resolution Mechanism (SRM) with the powers to close failing banks combined with a new financial supervisor for the eurozone under the auspices of the European Central Bank.
The talks were protracted because of deep divisions over who should have the last say over when a bank is to be wound up, combined with legal and practical difficulties of combining an EU regulation with a separate inter-government treaty to set the resolution body.
The commission and the ECB are concerned that complicated and unwieldy SRM structures, that have been defined by German objections over the mutualisation of banking risk, will not be able to take difficult decisions to close a bank quickly or secretly enough to prevent financial chaos.
The text of the agreement leaves it open for governments, meeting in a council of finance ministers, to block decisions by the SRM's board raising question over whether difficult decisions can be taken without blocking vetoes led by larger countries, such as Germany or France.
"Decisions by the board would enter into force within 24 hours after their adoption, unless the council, acting by simple majority on a proposal by the commission, objects or calls for changes," said the agreement.
The "banking union" proposals were drawn up in response to the financial and eurozone debt crises that brought down many banks and nearly destroyed the EU's single currency as governments had to be bailed out after rescuing their banks.
The key sticking points, which have yet to be conclusively resolved, have deeply divided Germany and France over the question of will have the final say in deciding to close a bank and how this will be paid for.
The agreement also fell short of creating a "common backstop" for a "single resolution fund" to help with the costs of bank failure in a deal that has left lingering questions over whether "banking union" can actually work.
During talks on Tuesday, Germany made a major concession to establish a common fund by 2025 that can provide mutualised support from eurozone governments to the bank resolution fund should its limited resources be overwhelmed in a crisis.
The climbdown was an important victory for France, Italy and the European Commission but there is no agreement or detail of how much the backstop will be or what form it should take.
"During this transitional phase, a common backstop will be developed, which would become fully operational at the latest after ten years. The backstop would facilitate borrowings by the fund. It would ultimately be reimbursed by the banking sector through levies, including ex-post," said the agreement.
In the meantime, an agreed fund comprising "national compartments" will be built up over 10 years from 2015 onwards from bank levies. It will only total €55bn (£46bn) by 2025, raising fears that it will not be enough to support a bank's restructuring in the event of a crisis.
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