* Euro zone ministers agree how to finance shutting of
* Germany scores victory in pushing back mutualising bank
risk by 10 years
* Deal paves the way for broader agreement on Wednesday
By Jan Strupczewski and Martin Santa
BRUSSELS, Dec 18 Euro zone finance ministers
made progress on Wednesday on some details of a plan to close
banks, paving the way for completion of a euro zone 'banking
union' that is to restore confidence in the financial sector and
More than five years into a financial storm that toppled
banks and dragged down states from Ireland to Spain, Europe
wants to seal its biggest project since the introduction of the
euro - a framework to police banks and tackle their problems
German Chancellor Angela Merkel underscored the importance
of the negotiations to complete the banking union, saying she
hoped the ministers would reach a deal before she and other EU
leaders meet on Thursday.
"For the acceptance of the euro on financial markets, the
banking union is very important," Merkel said on Tuesday.
That gives finance ministers 36 hours to clinch overall
agreement on an agency and fund to shut weak banks to complement
European Central Bank supervision of the sector if European
Union leaders are to sign off on it this week.
A crucial part of the project was agreed in the small hours
of Wednesday after seven hours of talks - how to ensure
financing for closing down banks.
This agreement boosts chances of an overall deal on the
blueprint on dealing with failing lenders later on Wednesday -
in time for the deadline set by Merkel and other EU leaders and
boosting chances the reform will become reality in 2015.
Under the agreement, banks will provide the cash to pay for
the closure of failed lenders, giving roughly 55 billion euros
($76 billion) over 10 years accumulated in a Single Resolution
Until then, however, if there is not enough money from the
fees, governments will be able to impose more levies on banks.
If that does not suffice, they would help with public money.
If a government would not have enough money, it could borrow
from the euro zone bailout fund ESM, like the Spanish government
did to recapitalise its banks in 2012, according to the deal
reached by euro zone finance ministers.
"In the transitional period, bridge financing will be
available either from national sources, backed by bank levies,
or from the ESM, in line with agreed procedures," a draft
statement by euro zone finance ministers said.
This is a victory for Germany, which was reluctant for euro
zone countries to share the costs of winding down banks
elsewhere in the euro zone for as long as possible.
After the build-up phase in 2025, when the Single Resolution
Fund (SRF) is full, additional money for emergency financing
could be raised by the SRF itself through borrowing, the draft
euro zone ministers' agreement said.
"A common backstop will be developed during the transition
period. Such a backstop will facilitate the borrowings by the
SRF. The banking sector will ultimately be liable for repayment
by means of levies in all participating Member States, including
ex-post," the statement said.
Ministers have already agreed on another plank of a banking
union, making the ECB supervisor of the region's largest banks
from the end of 2014.
An agency for winding up problem banks remains to be sorted
out. There is a question mark over the new procedure for closing
a bank. Documents circulating among diplomats and seen by
Reuters show an increasingly complicated structure emerging.
"The proposal on governance looks very complicated," said
Michael Noonan, finance minister for Ireland, which saw its
economy almost collapse after its banking crisis.
"In resolving a bank, one would want to be able to do it
over a single weekend at the maximum. So anything that is too
cumbersome, with various layers to it, won't be effective."
A general agreement among the ministers on Wednesday on how
to do that is all that is needed to start negotiations with the
European parliament on the legislation.
On Wednesday, EU ministers will discuss who will have the
power to close down a laggard bank in the euro zone.