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EU Finance Ministers Seek Banking Union Deal

posted 18 Dec 2013, 07:19 by Mpelembe   [ updated 18 Dec 2013, 07:21 ]

EU finance ministers seek banking union deal following euro zone agreement on how to finance closure of failed banks.

BRUSSELS, BELGIUM (DECEMBER 18, 2013) (REUTERS ) -  EU finance ministers gathered to seek a banking union deal on Wednesday (December 18) following euro zone agreement on how to finance the closure of failed banks.

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But Germany ruled out the use of euro zone money to back a scheme for tackling troubled banks, pouring cold water on hopes still harboured throughout the euro zone that the bloc will unite behind lenders in difficulty.

More than five years since a financial crisis struck, Europe is crafting its most ambitious reform since the launch of the euro -- an agency and fund to shut problem banks as soon as theEuropean Central Bank starts to police them next year.

European leaders want a deal by the end of the year so that this banking union can become reality from the start of 2015, raising investor confidence and helping bank lending.

"All the points are still on the table, the whole SRM, so the funds, the governance of the funds, the different rules and set up, the gradual mutualization, all these are still on the table. But I think the outline of compromises on all these issues are beginning to come clear," head of the EurogroupJeroen Dijsselbloem said arriving for a second day of negotiations with European peers inBrussels.

Building a banking union should prevent a repeat of the turmoil when failing banks in countries from Ireland to Cyprus brought their states to the brink of bankruptcy. But just as talks reach a climax, central elements of the plan are disintegrating.

Germany's finance minister Wolfgang Schaeuble's blunt message was in stark contrast with the optimism of his French and Spanish peers, who appeared to understand the role of the ESM differently.

French Finance Minister Pierre Moscovici appeared optimistic.

"I don't see any major difficulties, even if I understand that our friends outside the euro zone will want to assert some points, as is to be expected. But the structure is there now, it's solid, and this evening, I don't know exactly when, we'll disband with a decisive and historic agreement on the single resolution mechanism and, in turn, on the banking union," he told reporters.

His Scandinavian counterparts were more cautious, however.

"Well we are still very sort of interested in hearing how to understand it basically, because it raises a lot of questions and before we make our minds up we would like to make sure what are the answers to these questions," Danish Finance Minister Margrethe Vestager said.

Sweden's Anders Borg meanwhile pointed to the complexity of the proposals, saying he feared they would not boost confidence in European economies.

Unlike in the United States, where the federal government can transfer funds to help weaker states, countries in the euro zone do not send such aid. Germany, which makes up more than a third of the euro zone's economy, wants to keep it that way.

Berlin fears that allowing any sharing of the costs of bank repair using public money would pave the way for such transfers.

Completing a banking union is central to keeping the euro alive in the long term, a currency that is as political in its goal of deepening European integration as it is economic.

The euro lacks the workings of a normal currency union such as in the United States, which has a central finance ministry and central regulators alongside a central bank. Europe's banking union had promised to help change that.