The apex financial authority of European Union members said that a draft will be put on the table on 11 September 2012, which is expected to break the connection between terrible banks and indebted governments.
The eurozone debit crisis and a series of bankruptcy of financial firms in the EU members have crippled the whole financial system of eurozone and forced the governments to accept bailout packages.
Almost six members of EU, including Greece, Ireland, Portugal, Cyprus and Spain have accepted bailout packages, and this trend is expanding its hand towards other EU members.
The EU held a summit on 28-29 June 2012, and agreed to float a pan European banking, which can prevent reoccurrence of such fateful incidents, while winding up failed lenders so that they do not undermine the financial system.
As per the proposal outlined, the banking union will provide a rescue fund, the European Stability Mechanism, which will assist the grief stricken banks to get aid directly so as to avert problems and avoid adding to state debt.
Spain is expected to be the first beneficiary of the new system, with its EU partners having already agreed to provide up to €100bn ($123bn) to help its stricken banks.
"Allowing the ESM to directly recapitalise banks, once the conditions are met, is a cornerstone of our efforts to break the vicious circle between banks and sovereigns. Once in place, this will be a powerful tool to ease pressure on sovereigns in the euro area," Economic and Monetary Affairs Commissioner Olli Rehn said.
The new body, if floated, would be an agency of the European Central Bank, and will give a reality touch the EU executive plans to clear up the new agenda in the autumn, so that it could be approved at the next EU leaders’ summit, to be held on 13-14 December 2012.
