The EU has effectively buried the idea of a banking union. It is a decision that will have profound economic consequences for the eurozone. It kills the last chance of a resolution that could have ended the depression in the eurozone periphery. In the brave new world of the EU’s resolution regime, all risks will be shared between various categories of bank creditors, which are mostly domestic institutions, and the banks’ home states.

The European Council, the gathering of EU heads of government, has long become silent on the ceremonious pledge, made in June 2012, to break the link between sovereigns and the banks. Last week’s agreement did not break it. It has not even been diluted. It has been reconfirmed.

But has the European Stability Mechanism, designed to provide assistance to members of the eurozone, not been given the right to recapitalise banks directly – up to a total of €60bn? Yes, it has, but there is a catch. For each euro the ESM uses to recapitalise a bank, it has to post two euros as collateral to maintain its own credit rating. If the ESM were to use the entire pot of €60bn, its total available free lending capacity would shrink to some €200bn – not enough to meet the obligations it is likely to face in the next few years. The way the €60bn bank recapitalisation facility is constructed, the eurozone finance ministers will have a strong incentive not to use it as a bank recapitalisation fund at all. My conclusion is that the €60bn is there not to be used. And, as I argued last week, the losses of the banking system are so large that this amount would hardly make a difference anyway.