BRUSSELS (AP) -- European Union leaders gave an enthusiastic thumbs-up Thursday to a new mechanism agreed on to handle ailing banks, but analysts likened it to a band aid that falls short of what is needed to stabilize the bloc's financial system.
French President Francois Hollande said the new centralized institution for saving or shutting down troubled banks across the 17-nation eurozone will help preventing new financial crises and spare governments from having to save failing banks.
"Now the European taxpayer, the French taxpayer won't have to pay anything if there were another financial crisis," said Hollande at a summit of the European Union's 28 leaders in Brussels. Italy's Prime Minister Enrico Letta seconded the new institution is "certainly be a big step forward."
The heads of state and government were expected to broadly endorse the finance ministers' agreement and discuss how to deepen the bloc's economic integration.
But analysts were much less impressed, pointing to the new institution's cumbersome decision-making structure and lack of readily available joint funds.
"This compromise ... is an inelegant step in the right direction," said Daniel Gros of the Centre for European Policy Studies. "It leaves as many problems unresolved as it addresses."
Following months of haggling, the EU's finance ministers late Wednesday reached a deal on the technical details for the agency dealing with failing banks, establishing a final element of the 17-nation eurozone's planned financial market overhaul. That so-called banking union is the most ambitious step in integrating Europe's economy since the adoption of the common currency.
One of the reasons why Europe got into such financial trouble was that countries like Ireland or Spain had to step in to save their banks when the financial crises hit, eventually forcing the governments into seeking a bailout themselves.
German Chancellor Angela Merkel said after fortifying the governance of the eurozone's financial system the next and urgent step must be the introduction of "more coordinated economic policies."
Merkel is pushing for legally binding contracts committing eurozone nations to carry out agreed policies and reforms which would be supervised by the EU, with the incentive of offering countries some unspecified financial assistance in return.
"I am deeply convinced that this is important for the eurozone's acceptance in the long run," she insisted.
Many countries, however, loath giving up yet more sovereignty to Brussels or being bossed around by the bloc's most powerful members such as Germany and France. Leaders agreed to postpone a decision on the issue until next October.
Earlier this year an agreement was reached to create a joint supervisor to police the health of the eurozone's biggest banks.
The new institution, the so-called single resolution mechanism, will be advised by the joint banking supervisor and have the power to shut down or restructure banks across Europe. It will have a fund at its disposal that is set to swell to 55 billion euros ($76 billion) over ten years as banks will pay a mandatory levy. Before any of its money will be used, however, a bank's creditors, including holders of large deposits, will be forced to take losses.
Until the joint 55 billion euros will be available, closing or recapitalizing ailing banks will be paid for by a complex combination of funds from national bank rescue authorities and the European rescue mechanism.
Fears by some countries like Germany of being overruled on the use of the joint funds have resulted in a complicated decision-making structure involving multiple institutions and dozens of officials.
"If you arrive as a patient in a hospital's emergency room and at first a meeting of the clinic's supervisory board is called instead of the physician, then I don't think it will be good for your health," European Parliament President Martin Schulz said.
A decision to rescue or shut down a bank often has to be taken swiftly, sometime overnight before markets reopen. Alessandro Leipold of the Lisbon Council economic think tank therefore warned the ministers' compromise achieved the contrary, namely "a convoluted and labyrinthine decision-making process that stands in the way of efficient resolution."
Schulz warned that the upcoming negotiations with the European Parliament will be "certainly long and also difficult." Lawmakers are seeking a solution that created a more powerful centralized European authority.
Officials hope the legislation can be passed before parliament's current term expires in May to avoid long delays.
Gros said the agreement on the resolution mechanism is also incomplete because there is no explicit arrangement on how to give the fund a backstop in case of a really large financial crisis like the 2007-8 meltdown.
"Any restructuring fund can only be a first-aid kit dealing with a single accident," he said. "A systemic crisis always requires a fiscal backup."
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