EU argues over joint rescue plan for eurozone banks

Euros - file pic
Image caption There is strong opposition to charging taxpayers for banks' mistakes

The EU is edging towards a common mechanism for rescuing problem banks, in a drive to avoid any repetition of taxpayer-funded bailouts.

EU finance ministers finished marathon talks early on Wednesday - but they will try again next week to reach a deal on the eve of an EU summit.

Bank failures triggered the eurozone financial crises that struck the Republic of Ireland, Spain and Cyprus.

The new rescue blueprint would involve transferring powers to a new EU agency.

There are arguments over the future scope of that agency's powers - and the plan still has to be agreed with the European Parliament.

It is not yet clear how the new arrangement would affect business in the City of London, by far the biggest financial centre in the EU.

A common eurozone rescue fund would not bail out UK banks like Northern Rock, which nearly collapsed in 2007. Yet many banks in London do most of their business in the eurozone.

"We have come a long way," German Finance Minister Wolfgang Schaeuble said. The ministers agreed that in future the burden of bailing out a troubled bank should fall not on taxpayers but on the investors and creditors, he said.

Under the plan, an EU Single Resolution Mechanism (SRM) would be developed over 10 years, with a joint rescue pot of up to 55bn euros (£46bn; $76bn).

German concerns

Germany especially is keen for the SRM to be launched in January 2016. Initially the SRM would be based on separate national resolution funds for banks, but over 10 years those funds would merge into a pan-European pot.

It would be the second pillar of an EU banking union. The first pillar - the Single Supervisory Mechanism (SSM) - will take shape next year, with the European Central Bank acquiring powers to monitor the activities of all the major eurozone banks.

The third pillar would be a joint guarantee scheme for bank depositors. Currently each country operates its own national guarantee scheme, though there is an agreed EU-wide ceiling of 100,000 euros per depositor.

"We have made great progress... we are 95% of the way there," said French Finance Minister Pierre Moscovici.

Germany, with the biggest economy in the EU, is wary of any scheme that could lead to German taxpayers bailing out banks in neighbouring EU states.

Correspondents say Germany, unlike France, does not want the SRM's remit to extend to all of the eurozone's 6,000 banks.

A statement after the ministers' meeting spoke of "minimising taxpayers' exposure to losses".

The SRM would require banks across Europe to have detailed recovery plans in place and keep them regularly updated, so that effective action could be taken quickly if their finances deteriorated.

EU banks are bracing for new, more rigorous "stress tests" next year. The ECB hopes the checks will expose any weaknesses that could pose wider risks for the eurozone.

Related Topics