LONDON, Dec 18 (Reuters) - A day after she was sworn in for a third term and a day before she attends an EU summit in Brussels, Chancellor Angela Merkel delivers a speech in the Bundestag lower house. She will then head to Paris in the evening for a meeting with French President Francois Hollande.
That bilateral could be the moment that the seal is set on banking union, in time for the Thursday/Friday EU leaders summit.
In parallel, the bloc's 28 finance ministers will meet in Brussels to try and finalise a common position on the detail. 'For the acceptance of the euro on financial markets, the banking union is very important,' Merkel said on Tuesday.
For the markets, it will be impossible to look beyond today's Federal Reserve policy decision which might, or might not, start the process of slowing the pace of money-printing which has been churning out $85 billion a month. But banking union is hugely important too.
Euro zone finance ministers made progress overnight, essentially agreeing the blueprint Reuters reported exclusively over the weekend.
Banks will pay into funds to cope with the closure of failed lenders, to the tune of roughly 55 billion euros over 10 years which will eventually be incorporated into a Single Resolution Fund. Until then, if there is not enough money, governments will be able to impose more levies on banks. If that does not suffice, they would help with public money.
If a government could not foot the bill, it could borrow from the euro zone's ESM bailout fund. All that means the doom loop comprising weak banks and sovereigns will not be comprehensively broken for several years yet. In 2025, when the common fund is fully stocked, it could borrow on the markets itself to generate more funds. That's a long time away.
Whether that meets European Central Bank chief Mario Draghi's concerns is very much open to question. On Monday, he baldly stated that the latest plans for winding down failing banks may be too complex and inadequately funded, which is about as damning as he could be in public.
Complexity is another bugbear. EU policymakers have drawn up a plan in which a Board of the Single Resolution Mechanism would prepare decisions on bank closures that the European Commission would have the right to veto after consulting national authorities and the ECB.
We know bank failures can happen quickly and this cumbersome process could risk a bank run. 'The proposal on governance looks very complicated,' Irish Finance Minister Michael Noonan said.
Russia made a stunning offer to bail out Ukraine yesterday, surpassing all expectations by offering not just cut price gas but also $15 billion to buy Ukrainian bonds next year. That nips the financial crisis in the bud for now.
The big question is how President Viktor Yanukovich's opponents, and protestors on the streets of Kiev, respond, having been galvanized by his decision to turn his back on an EU free trade deal and turn instead to Moscow.
Opposition leaders have called for mass rallies over the holiday season on the central square occupied for weeks by protesters.
After a strong showing by its PMI survey and the ZEW sentiment index hitting its highest level in nearly eight years, Germany's Ifo index today will presumably follow the same trend.
The ever cautious Bundesbank has become markedly optimistic, forecasting this week that Europe's largest economy would grow strongly in the last three months of this year and the first quarter of next.
A combination of fresh UK unemployment data and the minutes of the Bank of England's last policy meeting will provide a fresh test of the Bank's forward guidance that interest rates won't rise for a considerable time.
As elsewhere in the central banking world, the BoE seems determined to use mechanisms other than interest rates to cool things down if necessary. In Britain, the housing market is rapidly becoming the hot spot.
The unemployment rate is forecast to hold at 7.6 percent but if it drops again, speculation about an interest rate rise before the end of 2014 will be rekindled.
Portugal is hoping to follow Ireland's lead and exit its bailout programme next year. On Monday, the EU and IMF gave a positive verdict on its latest bailout review.
But it faces a trickier path not least because of its constitutional court which has already thrown out various government austerity measures and is due to rule by the end of the week on pension cuts needed to meet EU/IMF debt goals. Portugal Prime Minister Pedro Passos Coelho is due to speak in parliament.
(Editing by Patrick Graham) Keywords: EUROPE/VIEW
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