Although the leaders meeting in Brussels said their decisions on the watchdog — the single supervisory mechanism — were key to shoring up lenders and eventually giving them access to loans from Europe's bailout fund, many observers were struggling to figure out exactly what had been achieved.
Rather than finding new measures to fight the crisis, the leaders focused on establishing a timeline for those they had already agreed to.
"It is good for Europe that we'll have a single supervisory mechanism up and running in the course of 2013," Herman Van Rompuy, president of the European Council, which includes the leaders of all 27 EU countries, said Friday.
That appeared to go half a step further than the statement the EU heads of state and government adopted after all-night negotiations, which only committed to trying to get a plan for the banking supervisor in place by Jan. 1 and working in 2013 on getting it operational.
The supervisor needs to be up and running before European countries can work on the next big step in their crisis-fighting plan — giving their bailout fund, the European Stability Mechanism, the power to rescue banks directly, bypassing national governments.
That step is crucial because banks remain at the core of Europe's financial problems. Many are teetering on the brink of bankruptcy after the investments they made up in boom times — including in government bonds and real estate — plummeted in value. Some governments have stepped in to save their banks, only to worsen their own finances in the process.
European leaders want to shield troubled governments from the burden of supporting their banks. That would be a huge relief to countries like Spain, which are facing the prospect of taking on enormous debts — and worrying markets — in order to bail out their banks.
"The objective is simple: we want to break this relationship between the management — often the poor management — of banks and the consequences for state budgets," Belgian Prime Minister Elio Di Rupo said as he headed into the second day of a summit meeting in Brussels.
But the answer is not simple. Some countries, led by France and Italy, are pushing for the bailout fund to be given the power to loan money to banks directly. But in order to get that power, banks first need to be under the supervision of the European Central Bank — hence the urgency of settling the details about the single supervisor.
The compromise included something for both sides — all 6,000 banks in the eurozone will be included, as France had wanted, as well as a mention that leaders would try to get a legal framework for the supervisor in place by Jan. 1.
But there is no firm deadline for the single supervisor to be up and running.
Analysts were struggling to see what was new.
"The real question then is whether this is a step towards allowing the European bailout funds to recapitalize banks directly and thus reduce the link between an individual sovereign and its banking system," said Gary Jenkins of Swordfish Research. "The answer appears to be 'yes' although we have of course been here before."
Markets in Europe appeared unimpressed by the progress made at the summit. Germany's DAX and the CAC-40 in France had fallen 0.5 per cent by mid-afternoon. Meanwhile, on the currency markets, the euro against the dollar was off 0.12 per cent at $1.3057.
Leaders pushing for a quick resolution on the bank supervisor declared victory on Friday.
"The new system will begin in 2013, and by that year it will operate recapitalizing the banks without the direct participation of governments," said Italian Premier Mario Monti.
But German Chancellor Angela Merkel and her allies were singing a different tune. Merkel has repeatedly said that the quality of supervision should take precedence over speed.
In Berlin, lawmakers in her party were claiming they'd won.
"The chancellor said here yesterday that, as far as the banking union and banking supervision are concerned, thoroughness goes before speed," Norbert Barthle, a senior lawmaker with Merkel's Christian Democrats, said.
Merkel also denied she was playing politics on the banking supervisor after suggestions she was pushing it off until after German elections next fall.
"This is a bad insinuation," she said. "I have no link in mind between the upcoming elections and the banking authority."
Thorny questions still remain about which banks would be eligible for the direct loans. Ireland, for instance, was forced into a bailout because of the expense of saving its banks — but it's unclear whether its banks would be eligible for relief from the bailout fund retroactively.
The bloc is also facing questions of how to help Greece out of its debt problems. The country's international creditors are currently deciding whether to hand out its next batch of loans, which Greece needs to avoid default and stay in the eurozone.
"The question of Greece's place in the eurozone must not be asked anymore," French President Francois Hollande told reporters, although he had earlier said it was not a settled matter.
Greek Prime Minister Antonis Samaras was upbeat after the summit, saying EU leaders had given Greece assurances rather than wishes.
"The climate has changed," Samaras said. "The general picture that was presented yesterday means that Greece will stay in Europe."
He added that a positive report from the trio of international lenders, known as the troika, would be sufficient for a new tranche of bailout funds to be released, and there would be no need to wait for another summit of EU leaders.
Without a new tranche of funds, he said, Samaras said that, Greece will run out of money on Nov. 16.
Don Melvin in Brussels and Geir Moulson in Berlin contributed to this report.
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