After a financial storm that toppled banks and dragged down states
from Ireland to Spain, countries are considering a fresh blueprint
outlining what to do when a bank fails, a critical second pillar of
a wider reform dubbed banking union.
Sealing a deal ahead of next week's meeting of EU leaders will allow
Germany's Chancellor Angela Merkel and her peers to trumpet an
important overhaul of banking although their readiness to share the
costs of failed lenders, a central tenet of banking union, may fall
short of what was hoped.
A draft plan, circulated among EU ministers at a meeting in
Brussels, spells out how a new agency may close failing banks
chiefly in the euro zone and, crucially, how the cost can be shared
out among different national funds in the scheme.
Linking these funds will take 10 years, however, and it will fall to
countries to cover the costs in the mean time.
Significant divisions remain. A quick succession of daily meetings
have been planned to seal agreement when the ministers meet on the
eve of the leaders' two-day summit on December 19-20.
"We have sent a common signal to the markets that the European
banking sector is stable," Wolfgang Schaeuble, Germany's finance
minister, told reporters.
"Europe is a bit more complicated than the United States but ... we
have found a solution," he said, adding, however, that a ministers'
meeting next week was needed to finalize the agreement. "Nothing is
agreed until everything is agreed."
The new agency to shut banks and a fund to pay for the clean-up will
form a second pillar of banking union, as soon as the European
Central Bank starts supervising banks late next year.
Stronger countries in the euro zone do not assist weaker ones with
direct financial support. Germany, Europe's strongest economy, is
reluctant to set a precedent by helping repair banks in struggling
countries such as Spain.
On Tuesday, Schaeuble emphasized that it was down to countries to
individually shoulder the burden.
To complicate matters further, Germany wants a new treaty agreement
between governments in the scheme, a step that could be cumbersome.
France's Finance Minister Pierre Moscovici said that the basis for
an agreement had been reached, a view echoed by Michel Barnier, the
European commissioner responsible for the law.
But two officials inside the meeting painted a bleak picture. "There
are more questions than answers," said one.
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Sealing an accord next week is crucial in drawing a line under a
financial crisis that first struck Europe more than five years ago
with the near-collapse of Germany's IKB.
But building this union is proving divisive as it requires countries
to surrender sovereignty and may force them to pay toward repairing
banks in neighboring states.
SHARING THE COST
Winning German's support will also require countries to back an
early introduction of rules to impose losses on senior bondholders
and large depositors in failing banks, as was done in Cyprus.
Germany has long called for such a fast-tracking of rules, which
were originally planned only for 2018.
In the draft paper, officials proposed a starting date of January
2016, an acceleration that would have significant implications for
bondholders as well as savers with more than 100,000 euros
($137,200) in their accounts.
A deal among governments on how to wind down banks by the
self-imposed year-end deadline is important because it will allow
countries to address potential problems revealed by a health check
of banks by the ECB next year.
Failure to reach agreement would reflect badly on the bloc's
politicians, whose response to the crisis has at times been slow and
For the bank union to work, an agency has to get the power to close
down a bank.
But Germany, Finland and Slovakia want the final say to go to the
European Union's 28 ministers if needed, a process that could bog
down attempts to make quick decisions in an emergency.
The draft proposal leaves a question over the issue, proposing a
number of different and often unwieldy options when taking the
decision to close a troubled bank. Barnier warned that the process
proposed was too complex.
(Additional reporting by Jan
Strupczewski, Martin Santa, Emmanuel Jarry and Tom Koerkemeier;
writing by John O'Donnell; editing by Philip Barbara)
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