Factbox: Euro zone decides new measures to end debt crisis

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Factbox: Euro zone decides new measures to end debt crisis

Reuters | June 29, 2012 | 09:52 AM EDT

BRUSSELS (Reuters) - Euro zone leaders bolstered their crisis-fighting arsenal on Friday by giving their bailout funds more flexibility to stabilize bond markets and to directly recapitalize banks in future.

Below are the main elements of the decisions.

INTEGRATED EURO ZONE BANK SUPERVISION

The European Central Bank will become the top banking supervisor for banks in the euro zone. The European Union's executive arm is to shortly present a proposal on how to do that and leaders are to consider it by the end of the year.

A senior euro zone official said that because 14 out of 17 euro zone central banks already had supervisory powers the euro zone-wide supervisor could be set up by early 2013.

This is the first step towards a banking union in the euro zone, which will later also incorporate a bank resolution fund and a deposit guarantee scheme.

DIRECT BANK RECAPITALISATION

Under the current rules, if a country does not have enough money to recapitalize its own banks, the government can borrow from the euro zone bailout funds for that purpose. The loans increase the debt of the sovereign.

This creates a the vicious circle of indebted sovereigns borrowing to bailout banks, whose sovereign bond holdings fall in value because the sovereign borrows to bail them out.

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Source: http://www.cnbc.com/id/48012369?__source=RSS*tag*&par=RSS

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