* Countries grapple for deal to prevent embarrassing delay
* Euro zone ministers edge closer to deal but reach no
* Much still up for grabs, including imposing investor
By Jan Strupczewski and Martin Santa
BRUSSELS, March 10 Euro zone governments edged
closer on Monday towards a deal on how to wind down failing
banks, but reached no conclusions and more negotiations will
take place on Tuesday to address demands of the European
Negotiations are set to last until Wednesday and may be the
final step in a European banking union that would mean one
supervisor for euro zone banks, one set of rules to close or
restructure those in trouble and one pot of money to pay for it.
The role of euro zone bank supervisor has already been
assigned to the European Central Bank, which will take up its
new duties in November.
Talks on a new European agency to shut down failing banks,
and on a fund to pay for such closures which together are to
form a Single Resolution Mechanism (SRM), need to be agreed
before the last sitting of the European Parliament in mid-April.
Failure to do so would delay the law by at least seven
months, and probably more.
"Most importantly, tonight's meeting confirmed that all
participants, including the European Parliament representatives,
all of us want to reach a final agreement on the SRM package by
the end of March, in time for the end of the current term of the
parliament," Jeroen Dijsselbloem, who was chairing Monday's
meeting of euro zone ministers said.
Dijsselbloem said finance minister from the 18 countries
sharing the euro discussed various details of the resolution
mechanism but reached no conclusions as all the key issues would
be addressed again when all of the EU's 28 ministers sit down
for negotiations on Tuesday.
The banking union, and the clean-up of banks' books that
will accompany it, is intended to restore banks' confidence in
one another and boost lending across the currency bloc, helping
foster growth in the 18 economies that use the euro.
"This is a large scale political project which will allow
countries to borrow at the same rate whether you are Spanish,
Italian, German or French," French Finance Minister Pierre
New lending has been throttled by banks' efforts to raise
capital and cut their risks in recession, especially in
countries hit the hardest by the sovereign debt crisis.
The banking union is supposed to break the vicious circle of
indebted states and the banks that buy their debt, treated in
law as 'risk-free' despite Greece's default in all but name.
Euro zone banks now hold about 1.75 trillion euros of
government debt, equivalent to 5.7 percent of their assets and
the highest relative exposure since 2006, according to the
European Central Bank. In Italy and Spain, roughly one in every
10 euros in the banking system is now on loan to governments.
The biggest political reform since the launch of the euro
currency, banking union also touches on sensitive issues for
investors, including the imposition of losses on bondholders of
In return for giving its blessing to the wider scheme,
Germany wants to see losses imposed on bondholders and others
who have backed troubled banks from November.
TUG OF WAR
European governments disagree not only amongst themselves on
the details of the plan but also with the European Parliament,
which must give its blessing before the project can become law.
At the heart of the dispute is the complex process of
closing a bank. Countries are reluctant to cede authority to
Brussels and want a laborious system of checks before any
decision to shut a bank can be taken.
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 the decision
must then be approved by the finance ministers.
If the ministers want to change the board's decision, they
have to involve the European Commission and start a procedure so
complex that it is doubtful it can be completed quickly.
The European Parliament, on the other hand, wants no
involvement of EU ministers, arguing it politicises the process
and makes it cumbersome. It wants to leave the final go-ahead to
the more impartial European Commission.
Parliament also wants the ECB to be the only institution to
declare a bank is failing. EU governments want the agency board
and national authorities to have a say.
Governments and parliamentarians also disagree on how
quickly to build up the 'resolution' fund, used to cover the
costs of shutting a bank, and how soon countries should be able
to dip into the pot. The fund will be filled by euro zone banks
and is slated to reach around 55 billion euros ($76 billion).
Governments want the fund to reach full size over 10 years,
while the parliament wants the fund to be fully available to all
euro zone countries after just three years.
Finally, policymakers must decide if they will allow this
fund to borrow if it is short of cash, or if it should borrow
from the euro zone bailout fund or receive state guarantees.