The Single Supervisory Mechanism - can the European Central Bank break the vicious cycle?

Image sourced from: Wikimedia

Banks and sovereign nations in Europe face a ‘vicious cycle’, where higher borrowing costs and fears a government may default can make it more difficult or expensive for banks to borrow, and vice versa. On 12th September (2013) the European Parliament approved new powers for the European Central Bank (ECB) to act as a central regulator for European banks, in conjunction with national regulators. Is this a meaningful step towards a European banking union? Can it break the ‘vicious cycle’? And what does it mean for Australia?