Tuesday, December 10 11:27:20
European Union finance ministers are likely to take a political step towards creating a banking union with powers to close down failing banks today, but leave nagging legal details to another time, perhaps next week.
The ministers, meeting in Brussels, expect to reach a broad political deal on how to close down failing euro zone banks. But the precise details of how it will work will probably come late.
The issue is crucial for the euro zone as a banking union is widely viewed as shoring up the currency-sharing group against future debt and financial crises.
Financial markets have paid little attention to the debate but there is a risk that failure to reach an agreement could be taken as a sign the bloc is not capable of protecting itself.
To have the banking union in place from the start of 2015, ministers must reach an agreement between themselves by the end of the year to allow time for further negotiations with the European Parliament, which dissolves in April.
"I believe that a political agreement is possible today, even if there is further legal work to be done afterwards," French Finance Minister Pierre Moscovici told reporters on entering the meeting. "I would like to leave tonight with an agreement already clearly drawn."
European Central Bank Executive Board member Joerg Asmussen said the next ministerial meeting, called the Ecofin, to reach a final agreement could be on Dec 18th, on the eve of a European leaders' summit on Dec 19-20.
"I would expect that ...we will manage to narrow down the differences today. But I do not expect that we will reach a final agreement already today...so I already pencilled in another Ecofin before the European summit," he said.
The most contentious problems are: Who decides and who pays? because they raise complex questions of sovereignty and cost.
For the bank union to work, an EU institution has to have the power to close down a bank anywhere in the euro zone. A majority of countries would like this job to be entrusted to the EU's executive arm, the impartial European Commission.
But Germany, Finland and Slovakia would prefer such decisions to be made by the Ecofin council of finance ministers, especially if the decision to close down a bank would entail the use of any common euro zone funds.
How to pay for bank restructuring or closures is politically an even more difficult problem.
While all such expenses are eventually to be covered by the banks themselves from annual fees, the question is where to get the money from until enough such contributions accumulate in the Single Resolution Fund hat will be set up for that purpose.
"It is key from our side that especially in the transition period, when the fund does not have enough money, it has a credible backstop," ECB's Asmussen said.
Most ministers agree such last resort help for the Single Resolution Fund should come directly from the euro zone bailout fund ESM, with no involvement of governments, some of which them might not have the money to help.
But Germany opposes the idea, insisting that each government should backstop any expenses related to its banks, and, if needed, borrow from the ESM like the Spanish government did to recapitalise its banks, accepting all the loan conditions.
To minimise any costs that euro zone taxpayers may have to cover, the ministers have already agreed that bank shareholders, bond holders and even large depositors will be the first to lose money in the case that a bank is wound down.
But they have yet to agree on when the new, tougher rules on bank shareholder and creditor losses are to come into force. The initial plan was 2018, but this now looks likely to be pushed forward to 2016 instead. (Reuters)