* EU ministers set for slow progress towards ‘banking union’
* Greece to ask for “flexibility” in negotiations with Parliament
* Ministers to discuss halving the time for full cost sharing
By Jan Strupczewski
BRUSSELS, Feb 18 (Reuters) - European Union finance ministers will discuss on Tuesday whether to fully share the costs of closing down problem banks within five years rather than 10, a step towards mutualising euro zone risk that has always been sensitive for Germany.
The discussions are part of efforts to agree the details of a single bank-resolution mechanism for the euro zone, so legislation can go to the European Parliament by mid-April, before European elections are held in late May.
The Single Resolution Mechanism is the next step towards a ‘banking union, after a single supervisory authority was set up under the auspices of the European Central Bank. The single supervisor will begin work in November.
Ultimately, policymakers hope that establishing a banking union will restore stability to the sector after years of turmoil, opening the way for credit and lending to flow again, thereby stimulating economic growth.
While finance ministers agreed on the outlines of the single resolution mechanism in December, the framework must be worked out with the European Parliament. The lawmakers are unhappy about several aspects of the plan, including the timetable for pooling national funds raised to help wind down bad banks.
Parliament will hold its last sitting in mid-April before being dissolved ahead of the elections on May 22-25.
Greece, which now holds the rotating presidency of the European Union and is therefore in charge of overseeing negotiations with Parliament on the proposals, said it would ask EU ministers on Tuesday for more flexibility in the talks.
“The Greek presidency will ask, if not for a new mandate, then definitely for a certain flexibility so that we can negotiate with the Parliament and close the open issues,” Greek Finance Minister Yannis Stournaras said on Tuesday.
EU ministers agreed in December that bank closures would be financed from fees paid annually by banks in every euro zone country. That money goes into special national funds that would gradually merge into a single euro zone fund after 10 years.
Once completely merged, the costs of closing down a bank in one country would be fully shared by the whole euro zone banking system - a fundamental step towards risk mutualisation.
European Central Bank President Mario Draghi has called for shortening that to five years, to make the system operate at its full strength more quickly. Germany does not want fees from its banks potentially to be used elsewhere and opposes shortening the period for full risk mutualisation.
“What we want today... is some flexibility, so that we can close the gap with the parliament. There are certain issues, including this one,” Stournaras said.
Austrian Finance Minister Michael Spindelegger said he supported the shorter five-year period for full cost sharing.
The timetable for banks’ contributions would remain unchanged. The fund would reach its full capacity of 55 billion euros only after 10 years, he said.
Spain, which had to borrow almost 40 billion euros from the euro zone bailout fund in 2012 to recapitalise its own banks, backed the faster cost-sharing idea.
“It doesn’t seem like a bad idea to consider accelerating the mutualisation of the fund, to five from 10 years or somewhere in between,” Spanish Finance Minister Luis De Guindos said before the meeting.
Parliament is also at odds with euro zone governments about decision-making on bank closures. The legislators argue that involving the European Commission, the council of EU ministers and the Single Resolution Mechanism board is too cumbersome.
EU lawmakers also dislike the fact that setting up the national funds that would collect bank fees and the creation of the single resolution fund is to be regulated by a separate intergovernmental treaty outside shared EU laws.