* Germany's Schaeuble: no euro zone cash for failed banks
* France, Spain, Italy press for common backstop
* ECB says fund to close banks needs single credit line
By Robin Emmott and Annika Breidthardt
BRUSSELS, Dec 18 Germany is standing firm
against the use of euro zone money to back a scheme for tackling
troubled banks, dousing hopes still harboured by its peers 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 the
European Central Bank starts to police them next year.
European leaders - who meet at a summit on Thursday and
Friday - want to sign off on a deal so that banking union can
become reality from the start of 2015, raising investor
confidence and fostering more lending.
The aim is to 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.
Arriving for a second day of negotiations in Brussels,
Germany's finance minister said no money from the euro zone's
rescue fund, the 500-billion-euro European Stability Mechanism
(ESM), would be available directly to pay for bank clean-ups.
Instead, a government footing the bill for a failing bank
and falling short, could apply for a bailout paid for by the
That deals a blow to a central tenet of banking union as it
was originally conceived, namely that weak governments should
not be left to cope with banks, whose problems can buckle a
"The only way to the ESM is through the nation states,"
Wolfgang Schaeuble told reporters, reiterating the long-held
German view that such help can be given only to governments and
not directly to banks.
Instead, he talked about unspecified "additional means of
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.
Euro zone finance ministers agreed on Tuesday night that
banks will pay into funds for the closure of failed lenders,
amassing roughly 55 billion euros ($76 billion) over 10 years in
a Single Resolution Fund (SRF).
Until then, if there is not enough money available,
governments will be able to impose more levies on banks. If that
does not suffice, they would help with public money and after
that turn to the ESM for help.
After 2025, when the SRF is full, it could borrow to raise
additional emergency itself, the draft euro zone ministers'
agreement said. That was put to a meeting of all 28 EU finance
ministers on Wednesday.
Schaeuble's blunt message jarred with that of his French and
Spanish peers, who appeared to understand the role of the ESM
The dissonant voices cast a question mark over whether the
new scheme to close banks and the entire banking union project.
"Using the ESM has not been ruled out at all," Luis de
Guindos, Spain's economy minister, told reporters, a line echoed
by his Italian counterpart Fabrizio Saccomanni.
Asked if the euro zone was breaking the 'doom loop' between
struggling banks and their states, French Finance Minister
Pierre Moscovici said: "That was exactly the purpose and that is
what we are going to achieve."
The European Central Bank, on whose support many banks
depend, has become agitated because delays and uncertainty over
how failed lenders will be dealt could compromise attempts to
clean up the financial sector after ECB health checks next year.
"The single fund should have a credit line," Vitor
Constancio, a member of the ECB's executive board, told
ministers in part of the meeting that was broadcast.
His boss, Mario Draghi, said on Monday that the latest plan
may be too complex and inadequately funded.
But there is little chance of a back-up without German
Completing a banking union is central to keeping the euro
safe in the long term, a currency bloc 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.
To compound matters, negotiators have also devised an
unwieldy system to close a bank that may involve ministers from
across the 28 countries in the European Union.
"We have to move fast in emergencies to resolve certain
banks. I am concerned about decision making ... this remains too
complex," Michel Barnier, the European commissioner in charge of
financial regulation, told ministers in the meeting.
"We are building up a single system, not an
intergovernmental network with several tiers," he said.
What results in the end is likely to be far off what
investors had originally expected. One leg, a common system of
deposit guarantees, will not be part of it. EU negotiators
agreed here only to standardise the rules on saver protection.