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ECB pushes to move to EU's bank deposit insurance: official

The European Central Bank (ECB) headquarters are pictured in Frankfurt, Germany December 14, 2017. REUTERS/Ralph Orlowski

BRUSSELS (Reuters) - The President of the European Central Bank told euro zone finance ministers on Monday that conditions have been already met to at least begin talks on the first phase of a common European Deposit Insurance Scheme, an EU official said.

Mario Draghi’s remarks came after euro zone finance ministers said no quick breakthrough was expected on the banking union, the bloc’s flagship plan to strengthen its banking sector.

“Significant and sufficient risk reduction has been achieved to allow the opening of negotiations to move to the first phase of EDIS,” an EU official said, reporting what Draghi told euro zone finance ministers during their regular monthly meeting.

Germany, the euro zone’s largest economy, wants banks in the bloc to get healthier before a common insurance scheme for depositors is set up. This requires more risk reduction, in Brussels’ parlance.

Berlin fears EDIS would force German lenders to pay for losses at weaker banks in other states.

Draghi told ministers that risk reduction measures should in any case be pursued, in particular reducing the bad loans that are still a burden for many banks, especially in southern Europe.

Under proposals put forward by the European Commission in October, a common deposit insurance scheme would come into play only after national schemes had spent all the money available.

In its first phase, EDIS would lend to national insurers only enough to cover 30 percent of their losses. That would increase in stages to 90 percent from 2021.

A second phase would see EDIS directly cover depositors’ losses, but only in part, with national insurance schemes continuing to bear the brunt of any banking crisis.

Reporting by Francesco Guarascio; Editing by Catherine Evans