Negotiations are set to last until Wednesday and may be the final
step in a European banking union that would mean one supervisor for
euro zone banks, one set of rules to close or restructure those in
trouble and one pot of money to pay for it.
The role of euro zone bank supervisor has already been assigned to
the European Central Bank, which will take up its new duties in
Talks on a new European agency to shut down failing banks, and on a
fund to pay for such closures which together are to form a Single
Resolution Mechanism (SRM), need to be agreed before the last
sitting of the European Parliament in mid-April.
Failure to do so would delay the law by at least seven months, and
"Most importantly, tonight's meeting confirmed that all
participants, including the European Parliament representatives, all
of us want to reach a final agreement on the SRM package by the end
of March, in time for the end of the current term of the
parliament," Jeroen Dijsselbloem, who was chairing Monday's meeting
of euro zone ministers said.
Dijsselbloem said finance minister from the 18 countries sharing the
euro discussed various details of the resolution mechanism but
reached no conclusions as all the key issues would be addressed
again when all of the EU's 28 ministers sit down for negotiations on
The banking union, and the clean-up of banks' books that will
accompany it, is intended to restore banks' confidence in one
another and boost lending across the currency bloc, helping foster
growth in the 18 economies that use the euro.
"This is a large scale political project which will allow countries
to borrow at the same rate whether you are Spanish, Italian, German
or French," French Finance Minister Pierre Moscovici said.
New lending has been throttled by banks' efforts to raise capital
and cut their risks in recession, especially in countries hit the
hardest by the sovereign debt crisis.
The banking union is supposed to break the vicious circle of
indebted states and the banks that buy their debt, treated in law as
'risk-free' despite Greece's default in all but name.
Euro zone banks now hold about 1.75 trillion euros of government
debt, equivalent to 5.7 percent of their assets and the highest
relative exposure since 2006, according to the European Central
Bank. In Italy and Spain, roughly one in every 10 euros in the
banking system is now on loan to governments.
The biggest political reform since the launch of the euro currency,
banking union also touches on sensitive issues for investors,
including the imposition of losses on bondholders of failing banks.
In return for giving its blessing to the wider scheme, Germany wants
to see losses imposed on bondholders and others who have backed
troubled banks from November.
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TUG OF WAR
European governments disagree not only amongst themselves on the
details of the plan but also with the European Parliament, which
must give its blessing before the project can become law.
At the heart of the dispute is the complex process of closing a
bank. Countries are reluctant to cede authority to Brussels and want
a laborious system of checks before any decision to shut a bank can
EU finance ministers agreed in early December that a decision on
closing down a bank in the euro zone would be taken by the board of
the resolution agency, but that the decision must then be approved
by the finance ministers.
If the ministers want to change the board's decision, they have to
involve the European Commission and start a procedure so complex
that it is doubtful it can be completed quickly.
The European Parliament, on the other hand, wants no involvement of
EU ministers, arguing it politicizes the process and makes it
cumbersome. It wants to leave the final go-ahead to the more
impartial European Commission.
Parliament also wants the ECB to be the only institution to declare
a bank is failing. EU governments want the agency board and national
authorities to have a say.
Governments and parliamentarians also disagree on how quickly to
build up the 'resolution' fund, used to cover the costs of shutting
a bank, and how soon countries should be able to dip into the pot.
The fund will be filled by euro zone banks and is slated to reach
around 55 billion euros ($76 billion).
Governments want the fund to reach full size over 10 years, while
the parliament wants the fund to be fully available to all euro zone
countries after just three years.
Finally, policymakers must decide if they will allow this fund to
borrow if it is short of cash, or if it should borrow from the euro
zone bailout fund or receive state guarantees.
(Additional reporting by Annika
Breidthardt, Robin Emmott and John O'Donnell; editing by Catherine
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