* EU ministers inch closer on who can close down banks, who
* Draft proposal charts part for sharing banks' collapse
* Berlin demands treaty among states before tapping euro
By Emmanuel Jarry and Annika Breidthardt
BRUSSELS, Dec 10 Euro zone countries edged
closer on Tuesday to agreeing a plan to close ailing banks and
sharing the costs, a move that would pave the way for a
fundamental reform to underpin the currency and its banks.
After a financial storm that toppled banks and dragged down
states from Ireland to Spain, countries examined a fresh
blueprint outlining what to do when a bank fails, a critical
second pillar of a wider reform dubbed banking union.
The draft plan, circulated among EU ministers at a meeting
in Brussels, spells out how a new agency may close failing banks
in the euro zone and crucially, how the cost can be shared out
among countries in the scheme.
If agreed, this would overcome the long-standing objections
of Germany and reinforce the scheme. But it remains to be seen
if France, Spain and others will sign up.
Europe's biggest economy has so far opposed the use of euro
zone money to repair banks in countries such as Spain because it
does not want to end up footing the bill.
In return, however, Germany wants a new treaty agreement
between governments in the scheme, a step which will be
cumbersome at the very least.
Furthermore, any such sharing of euro zone money should only
be possible one decade after the start of scheme - set for 2015.
Lastly, Germany wants to skew voting on some decisions about
closing banks according to the size of the country.
The deal, which will not be finalised before next week, is
to build the second pillar of the banking union, viewed as
essential to shore up the currency-sharing group against future
debt and financial crises.
Sealing an accord would draw a line under a financial crisis
that toppled banks and dragged down governments from Ireland to
Building this union has proved divisive as it requires
countries to surrender sovereignty and that they pay towards
repairing banks in neighbouring states.
Financial markets have paid little attention to the debate
but there is a risk that failure to reach a final agreement
could be taken as a sign the bloc is not capable of protecting
European leaders want a deal by the end of the year so that
banking union can begin by 2015, including a quicker
introduction of rules to impose losses on senior bondholders and
large depositors in failing banks, as was done in Cyprus.
Such a move would satisfy Germany, which has for long called
for such a fast-tracking of rules, which were originally planned
only for 2018.
In the draft paper, officials proposed a starting date of
January 2016, an acceleration that would have significant
implications for bondholders as well as savers with more than
100,000 euros ($137,200) in their account.
"The council (of ministers) has sent a strong signal to
markets that we want to protect taxpayers and that the time for
bailout is over," Germany's finance minister, Wolfgang
Schaeuble, told ministers earlier on Tuesday.
Such a move provoked a nervous response from a number of
European Union finance ministers on Tuesday, worried that the
rules' early introduction could rattle markets.
Italian Finance Minister Fabrizio Saccomani made it clear
that he would only support Germany in return for concessions on
a common euro zone back-up plan for failing banks.
"We are available to discuss it ... if there is a single
resolution fund and common backstops are clearly agreed upon and
in place," he told his peers in remarks broadcast to reporters.
BRIDGING THE DIVIDE
A deal among governments on how to wind down banks by the
self-imposed year-end deadline is important because it will
allow countries to deal with potential problems revealed by a
health check of banks by the ECB next year.
Failure to reach agreement would reflect badly on the bloc's
politicians, whose response to the crisis has at times been slow
"I would expect that ...we will manage to narrow down the
differences today," said Joerg Asmussen, a member of the
European Central Bank's Executive Board.
"I do not expect that we will reach a final agreement
already today," he said, adding that he had "pencilled in"
another meeting of EU ministers before the bloc's leaders meet
on December 19-20.
The most contentious problems are: Who decides and who pays?
For the bank union to work, an agency has to get the power
to close down a bank. Most countries would like this job to go
to the EU's executive arm, the European Commission.
But Germany, Finland and Slovakia would prefer such
decisions to be made by all EU ministers, especially where the
closure of the bank would require them to pitch in help.
The draft proposal leaves a question over the issue,
proposing a number of different options when taking the decision
to close a troubled bank.