January 20, 2018
Tuesday, March 11, 2014

European states seek backing for banking union reform

The Euro logo is seen in front of the European Central Bank, ECB in Frankfurt am Main, central Germany, on March 6, 2014. (AFP)
European ministers agreed to strengthen a scheme to tackle troubled banks, seeking to win the blessing of EU lawmakers for a reform to fortify the euro zone against crises.

After two days spent trying to finalise the most ambitious political project in Europe since the euro, ministers said they disbanded with broad agreement on the final element of banking union, a scheme to tackle bad banks.

But officials said key questions remained open, including the degree to which countries would help each other tackle problem banks under the plan intended to break the link between indebted states and the banks that buy their debt - treated in law as 'risk-free' despite Greece's default in all but name.

With conflicting accounts emerging from the room, one official said it had yet to be decided how much countries should be able to help one another in tackling problem banks - 'mutualisation' is a central plank of the 'banking union'.

This means crunch talks with the European Parliament, to take place in Strasbourg on Wednesday, may not succeed.

Should they get bogged down, it would cast a cloud over the project to allow the European Central Bank to supervise the sector, creating an agency to wind down failing banks and a fund to cover clean-up costs.

It could even fall to European Union leaders, who meet in Brussels on March 20-21, to decide.

"On the question of mutualisation there are very different positions," Wolfgang Schaeuble, Germany's finance minister, told journalists after the meeting, referring to the extent to which countries would club together in dealing with bad lenders.

Joining forces across the euro zone had been the original intention when banking union was pledged at the height of the bloc's sovereign debt crisis. But as markets have calmed, Germany, which does not want to be on the hook for problems in Spain or elsewhere, has dug in its heels.

Earlier, Spain and the Netherlands failed to win over a Germany to support the 'resolution' fund from its outset, when it will be small. Instead the fund will likely be allowed to borrow on the markets against future levies on banks but with no special government support.

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.

This helps explain why countries are reluctant to cede authority to Brussels on closing a bank.

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Tags:  World  EU  ECB  Reform  

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