BRUSSELS (Reuters) - When it takes six hours to draft a single sentence in a 100-page document, you know things are moving slowly.
In meeting rooms of embassies across Brussels, diplomats are haggling over the finer details of dozens of reforms more than four years after the financial crisis that devastated European banks and triggered the euro zone’s struggle with debt.
While the United States agreed in 2010 an initial framework to prevent financiers taking the kind of risks that sparked the deepest global recession since the 1930s, the European Union’s response is often tangled in backroom diplomacy.
“Bailout is a naughty word these days but we haven’t created a system to deal with failing banks without one,” said a diplomat from a northern European country who is working on around 15 different EU dossiers to regulate finance. “We are still spending hours arguing over the wording of a sentence.”
The crisis revealed how regulators and even top bank executives on both sides of the Atlantic failed to grasp the risks in the complex financial architecture they helped build.
But agreeing new laws among the bloc’s 27 member countries and the European Parliament is becoming so burdensome that diplomats worry Europe’s defenses will not be in place should a new crisis hit.
German lender IKB was the first casualty of the financial crash in mid-2007, imploding after pursuing what one banker described as an “all you can eat” strategy, snapping up U.S. subprime mortgage debt.
By the time the worst of the crisis was over in Europe, more than 50 lenders had to be rescued by their governments.
The EU responded with rules governing hedge funds and banker pay. But it has yet to outline a framework law for dealing with banks threatened with collapse, a reform many analysts believe is central in ensuring that bank bondholders - and not the taxpayer - pay to rescue banks in future.
The delicate state of Europe’s banks, which have been faced with the possibility of a chaotic Greek debt default, is partly to blame.
Banks still have trillions of euros of risky loans on their books, and it has taken the near-unlimited offer of funds from the European Central Bank to prevent another credit freeze.
Michel Barnier, the former French foreign minister given the task of leading an overhaul of EU financial regulation two years ago, is due to present his bank salvage plan sometime this year.
But even when he does, the proposed legislation could take three years to become law.
“We can’t afford any more delays,” Olle Schmidt, a liberal who is leading financial reform efforts in the European parliament. “If Europe is to be able to react swiftly to another crisis, these defenses must be in place.”
Diplomats have also clashed over proposed rules governing the amount of capital banks must keep in reserve to cover the risks of lending. This is crucial in preventing another credit boom of the kind that led to the financial crash.
Britain wants more leeway to impose stricter standards on capital than the EU, while France wants the limit capped, reflecting the different way the crisis affected the two neighboring countries.
“The French banking system did OK, albeit with public support, whereas British banks took some serious hits,” said Sony Kapoor, founder of think tank Re-Define.
Overhauling banking is just one of the dossiers keeping diplomats up late at night in the glass and steel buildings of Brussels’s European quarter - working in tandem with colleagues in their home capitals.
While EU leaders have held 17 summits over the past two years to resolve the sovereign debt debacle, diplomats are sifting their way through proposals for regulating derivatives, trading, insider dealing, credit rating agencies and banker pay.
And with most working groups held in English, non-native speakers often struggle to grasp the highly technical issues.
One official recalled an embarrassing misunderstanding, when an ambassador appeared to describe a discussion on hedge funds as being “like a short shit in a long bath.” Participants later concluded he meant “a short sheet on a long bed.”
“Sometimes you understand the words but you don’t understand the meaning,” said one eastern European diplomat.
The final legal text is often as mystifying as the process that created it. “They are unreadable,” said Eddy Wymeersch, a former regulator, commenting on hedge fund rules. “It is just page after page of legalese.”
Bruce Stokes, an analyst with think tank the German Marshall Fund, believes Washington works faster because directly elected members of Congress and not bureaucrats draft legislation. “Brussels is not that accountable,” he said.
Washington drew up the Dodd-Frank act in 2010, a framework for financial reform that includes sweeping changes including bans on banks trading on their own account.
Fleshing out the full detail of these rules will, however, require further work and the European Commission points to its success in moving earlier on banker pay and bank capital.
In Europe, much of the responsibility for rewriting the rulebook for finance falls to the Commission, proposing and writing the first draft of laws that are then sent to European countries and the bloc’s parliament for approval.
“The European legislative system is designed far more for incremental adjustment than for major reform,” said Nicolas Veron, an expert in financial policy who works in both Washington and Brussels. “It’s more bureaucratically driven, but that doesn’t mean that the outcome is not political.”
With things moving so slowly, those working on the dossiers say the new regulations are in danger of being overtaken by events.
“I’ll be retired by the time all of this is done,” said one banker, whose job it is to predict the direction of legislation. “It’s not the kind of work I’d recommend.”
Writing by Robin Emmott; additional reporting by Claire Davenport, editing by Mike Peacock