It seems that Europe has taken another step on the road to recovery, although some market participants are worried that the European Union is merely ‘kicking the can down the road’ in the hope that any potential upturn in the economy alone will solve the sovereign debt crisis.

EU leaders this week agreed to set up a single supervisor for banks in countries that use the euro with all 6,000 banks in the 17 eurozone countries to come under the supervision of one European body. Plans for a banking union, of which this will be a big first step, are seen as key to restoring confidence in the euro.

The deal, however, is still being seen as a compromise between France, who want the scheme up and running by the end of this year, and Germany, who are more reluctant to use taxpayers’ money to prop up ailing banks in other countries. No firm deadline has thus been set for the single supervisor to be in place—it is expected to be up and running some time in 2013—with some accusing the EU again of dithering.

“Given the reluctance of Germany for any proposal that could increase dramatically their financial contribution as well as the recent market strength, the risk would be for EU leaders to become complacent—[French president] Francois Hollande told reporters ‘the worst has passed’—and postpone difficult decisions well into 2013,” Yannick Naud, portfolio manager at Glendevon King Asset Management, a fixed income boutique based in London, told Markets Media.

“Since the start of the eurozone crisis, EU credibility was challenged not by the pace of decision making, but by the long delays in implementing these decisions.”

Germany still wants to see other more profligate nations have their budgets capped, something France and others are more wary of doing as they do not want to possibly lose control of their finances. While negotiations continue high up in Brussels to broker a deal to the debt crisis, unemployment for the region has reached record highs of 10.5% as many nations’ economies are beginning to falter once more.

“There is not all over Europe the same sense of urgency,” said José Manuel Barroso, president of the European Commission.

And there is still disagreement among member states about whether or not to implement a eurozone-wide deposit insurance program similar to the Federal Deposit Insurance Corporation (FDIC) in the U.S..

“I think the fullest banking union, including not only large institutions but also the smaller regional ones, inspired by the FDIC in the U.S. and controlled by the ECB is a necessity in order to decrease systemic risk, improve transparency and break the link between banks and national governments,” said Naud at Glendevon King. “But the fact that all 6,000 banks in the eurozone will be included is very positive.”

The European Central Bank will get these new supervisory powers aimed at nipping in the bud any future reckless accumulation of debt by any of the eurozone’s 6,000 banks.

However, no decision has been taken on whether ailing banks, such as in Spain, will be recapitalized ‘retroactively’ by the ECB using these new powers. It appears that recent progress in calming the bond markets—brought about by the announcement of ECB chief Mario Draghi in the summer when the ECB established a program to buy unlimited bonds off ailing member countries if they applied for a conditional bailout loan from the European Stability Mechanism (ESM)—could be lost if no timetable is agreed upon for the new EU banking union deal.

The timetable remains important as it will only be once the new supervisory body is fully operational will the ESM, the eurozone’s rescue fund, be able to start recapitalizing banks directly.

“Banking union is a vital project for Europe, which should advance market integration, strengthen financial markets and enhance confidence in the EU economy,” said Simon Lewis, chief executive of the Association for Financial Markets in Europe, a sell-side industry body.

“It is therefore essential that Europe’s leaders reach agreement as soon as possible on key aspects; that they get the detail right on vital areas like supervisory arrangements; and that they establish a clear roadmap to deal with the other integral components of banking union including the single resolution mechanism.”

The U.K., though, outside the 17-nation eurozone, and the main financial centre in the EU, wants safeguards to protect the powers of the Bank of England, in relation to the ECB’s new role as it and other non-euro countries feel they could be disadvantaged by the new set-up.

“As for the U.K., a full-fledged banking union is likely to contribute to reducing yet again U.K. influence within the EU,” said Naud. “Hollande apparently even told reporters that the U.K. was in ‘retreat’. [U.K. prime minister] David Cameron will probably not travel to Oslo in December to collect the EU Nobel peace prize; I am afraid it could prove to be another mistake.”