* Germany raises legal concerns on ECB bank supervision
* Ministers mull law to impose losses on depositors
* Ireland and Portugal to get longer to repay loans
By John O'Donnell and Jan Strupczewski
DUBLIN, April 11 Fallout from the messy bailout
of Cyprus will top the agenda of a two-day EU finance ministers
meeting in Dublin beginning on Friday, with focus also on
growing German reluctance over euro zone banking reform.
Unease surrounding the rescue package for Cyprus grew on
Wednesday after Reuters and other news organisations obtained
documents detailing how the bailout will be financed and how
much of the total Cyprus is now expected to contribute.
Whereas Cyprus was originally meant to come up with 7
billion euros, and the European Union and International Monetary
Fund would provide 10 billion, the documents show the total
package will now cost 23 billion euros, with Cyprus providing 13
billion of that.
What's more, Cyprus is expected to sell 400 million euros
worth of its gold reserves, and will have to raise corporate tax
and capital gains tax rates at a time when its economy is
forecast to contract more than 12 percent in the next two years.
The complete winding up of one Cypriot bank, Popular, and
the writing-off of a large portion of secured debt and uninsured
deposits in the largest bank, Bank of Cyprus, will raise a total
of 10.6 billion euros, the documents showed.
While the details of the programme have already been agreed
between Nicosia and the EU and IMF, Finland's finance minister
said on Wednesday there was still the potential for minor
adjustments. There is likely to be intense debate over whether
the bailout has been successfully put together.
"Some details might still be changed on Friday," Jutta
Urpilainen told reporters in Helsinki, emphasising that she did
not mean the headline figures but the internal numbers.
The Dublin meeting, an informal gathering of all 27 EU
finance ministers at which no decisions are expected, will also
examine the deepening problems in Slovenia and debate how to
press ahead with setting up a fully-fledged "banking union"
across the euro zone countries and wider EU.
In the long-run, it is the banking union debate that is most
critical since it touches on issues such as how to resolve bad
banks, how to put in place a single deposit-guarantee scheme and
how to establish a single resolution fund.
In June last year, EU leaders agreed that establishing a
banking union was an essential next step in breaking the "doom
loop" between big, problem banks and indebted sovereign
governments, so as to avoid one dragging the other down.
But momentum towards banking union has slackened, especially
among some German officials, as the complexities and potential
difficulties of the plan have come into clearer focus.
Berlin's greatest concern, as the euro zone's largest and
most successful economy, is being left on the hook to finance an
endless series of banking bailouts across the euro zone.
"The Germans have raised obstacles all the way along," said
one EU official, frustrated by the perceived foot-dragging.
"Everyone is getting fed up with them."
German officials say they are fully engaged in the debate
and are only concerned about ensuring that the right steps are
taken at the right time - an overly hasty approach to creating a
banking union will not be good in the long run, they say.
But other EU officials suggest there is a reluctance on
Germany's part to get stuck into potentially divisive
legislation before elections set for September, so as not to
damage Chancellor Angela Merkel's chances of reelection.
One of the more sensitive issues to be discussed on Friday
and Saturday will be a proposal from Ireland, which holds the
rotating presidency of the EU, to impose losses on interbank
deposits held by troubled banks as another way of resolving
banking sector difficulties.
The proposal, parts of which have been seen by Reuters, has
already caused concern in France and Italy and could be
destabilising for financial markets since it could cause
interbank lending to suspect banks to freeze up.
Dirk Schoenmaker of the Duisenberg School of Finance who
will take part in the discussions with ministers on the issue,
has suggested countries put up to the equivalent of 10 percent
of their economic output to help resolving bank problems.
In his presentation, seen by Reuters, Schoenmaker underlines
the urgency of the situation facing Europe's banks.
"There is a sizeable group of banks which are thinly
capitalised and have not fully recognised all loan losses," he
writes. "This group has no incentive to grant new loans. This
may cause a credit crunch and choke economic recovery."
The ministers will also discuss how to go about directly
recapitalising banks from the euro zone's bailout fund - another
step meant to break the vicious circle between indebted
sovereign governments and shaky banks.
Jeroen Dijsselbloem, the Dutch finance minister and
president of euro zone finance ministers, told Reuters in an
interview last month that it may never be necessary to
recapitalise banks from the bailout fund, a comment that alarmed
countries hoping to use the facility.
Although no formal decisions will be taken at the meeting,
ministers are expected to give their endorsement to extending
the time that Ireland and Portugal get to repay loans they have
already received from the bailout funds.
This would be a significant concession to Ireland, helping
to seal its return to normal borrowing on markets, as well a
boost to Portugal as it struggles to push through spending cuts.