* Compromise needed next week to avoid months of delay
* Governments, parliament still disputing main issues
* At odds over who decides, pays to sort out troubled banks
By Jan Strupczewski and Martin Santa
BRUSSELS, March 9 European Union governments and
parliamentarians will try to reach a compromise this week on how
to wind down failing banks, in marathon talks intended to settle
who decides to close banks and who picks up the bill.
A deal in the negotiations, set to span three days, would be
the final step in a European banking union that would mean one
supervisor for all euro zone banks, one set of rules to close or
restructure those in trouble and one common pot of money to pay
The banking union, and the thorough clean-up of banks' books
that will accompany it, is meant to restore banks' confidence in
one another and boost lending to other businesses and
New lending has been throttled by banks' efforts to raise
capital and reduce the bad loans that proliferated in the
recession triggered by the global financial crisis and deepened
by the euro zone's own sovereign debt crisis.
Policymakers agreed last year that the European Central Bank
(ECB) will be the single supervisor for all euro zone banks and
the ECB will take on its new responsibilities from November.
But talks on a single European agency to wind up or close
failing banks, and on a single fund to back it up, have entered
a crucial stage: EU governments, represented by finance
ministers of the 28-nation bloc, and the European Parliament
must reach a deal next week.
If they don't, there won't be enough time to complete the
legislative process for the resolution mechanism before the last
sitting of the current parliament in mid-April. The key law
would be delayed by at least seven months, probably more.
"The ground is very well prepared, now we have to show
political will. We will stay there (in the meeting) as long as
it takes to find a solution," one EU official involved in the
preparations for the talks said.
"It's clear to all EU member states that if we want to
achieve an agreement there's only one direction to go - to try
to accommodate the parliament," the official said.
The problem is that European governments and the European
Parliament want different things.
POSITIONS FAR APART
EU finance ministers agreed in early December that a
decision on closing down a bank in the euro zone would be taken
by the board of the resolution agency, but that decision must be
signed into law by the EU's executive Commission and by all the
EU finance ministers.
The European Parliament wants no involvement of EU finance
ministers, arguing it would politicise the process.
Parliament also wants the ECB - the supervisor of all banks
- to be the only institution that can declare a bank is failing
and that its fate has to be resolved. EU governments want the
single resolution agency board and national authorities to have
Governments and parliamentarians also disagree on how
quickly to build up the shared resolution fund and how soon all
the money in it should be accessible to all countries.
The fund will be filled from contributions of all euro zone
banks and is to reach, eventually, around 55 billion euros ($76
Governments want the fund to reach full capacity over 10
years and agreed the amount of money that would be available to
all euro zone countries would increase by 10 percent each year,
so that the fund would be fully mutualised after a decade.
In the meantime, if a euro zone country does not have enough
money accumulated from the contributions of its own banks to
cover the costs of closing one, its government would have to
come up with the cash. If it cannot borrow that from the
markets, it could ask the euro zone bailout fund for a loan.
The parliament believes this would not break the vicious
circle of highly indebted governments trying to rescue banks
that are failing because they lent to the government.
Parliamentarians therefore want all bank contributions to
the resolution fund to be fully available to all euro zone
countries after three years, not 10. This could make it
unnecessary for governments to borrow at all, providing relief
to battered public finances.
Whether banks would therefore have to pay in all the 55
billion more quickly as a result is another contentious issue.
Finally, policymakers have to decide if they will allow the
single resolution fund to borrow on the market against the
security of future contributions from banks if it is short of
cash at any point, or if it should be allowed to borrow from the
euro zone bailout fund or given government guarantees.
Even though all these issues have been known since early
December, there has been no progress so far.
"No major issue has been solved, because we will go for
solving them all together," the EU official said.
A deal is to be worked out over Monday and Tuesday, when
euro zone and EU finance ministers meet to amend their initial
position from December, and Wednesday when they will present the
new stance to parliament.