EU closes in on bank wind-down deal

European Union finance ministers announced early on Wednesday that they have hammered out the broad lines of a compromise on a contentious new scheme to wind down troubled Eurozone banks, but gave themselves until next week to deliver a final deal.

The much-touted measure is meant to shield taxpayers from having to contribute to bank bailouts. It would be the second pillar of a crisis-thwarting banking union, which is considered key to restoring trust in the Eurozone.

The EU is under pressure to deliver an agreement by the end of this year as the new scheme could otherwise be put on ice through most of 2014 because of European elections. EU leaders are to assess progress at a summit starting December 19.

“We have no formal result in our pocket or on the table, but we made a huge leap forward (on) defining the concrete directions and concrete schemes,” said Lithuanian Finance Minister Rimantas Sadzius, who chaired the ministers’ talks in Brussels.

“We have covered 95 per cent of the way,” French Finance Minister Pierre Moscovici said at the end of the 14-hour meeting. “This single resolution mechanism will see the light of day. ... The political architecture is now clearly outlined.”

The compromise calls for the new scheme to directly cover the eurozone’s largest banks, along with all cross-border financial institutions. If a smaller lender gets in trouble, it too would then fall under the scheme’s reach.

A resolution fund

A single Eurozone resolution fund will be gradually set up over 10 years to pool resources for winding down banks, but it will at first feature clearly separate national “compartments,” ministers said.

Germany especially has been leery about having to pay up for failing banks in other countries.

Berlin had resisted efforts to have the eurozone’s bailout fund available to help ailing lenders until the bank—financed resolution fund reaches its final size of around 50 billion euros ($69 billion).

Moscovici spoke of the bailout fund being available as a last resort, but conceded that this was one of the areas that still have to be finalised — along with details on who would have a say in a troubled lender’s restructuring or closure.

The EU’s market regulation commissioner, Michel Barnier, warned that the set-up taking shape — with decision-making involving both the bloc’s executive and its member states — would prove “too complex”. The whole scheme is to be set up based on existing EU treaties, but also an inter-governmental agreement that Moscovici said would be signed by March.

Technical and legal details are now to be worked out, with ministers expected to meet on December 18, though the date was not confirmed.

On the right track

“We have reached the point where we can say that we will make it next week,” German Finance Minister Wolfgang Schaeuble said. “We have to send a joint signal also to the financial markets that the European banking sector is stable.” Moscovici said he “cannot even imagine that there could be a failure” at this point. Fears have been rife that the eurozone, slowly recovering from a prolonged recession, could otherwise be plunged back into instability.

The stakes are high also because eurozone banks face a new round of stress tests next year, which could expose fresh problems.

“There is no place for retreating into nationalism and protectionism,” European Central Bank chief Mario Draghi warned at a Bank of Italy conference in Rome.

Also Tuesday, ministers failed to deliver a breakthrough in their clampdown on tax cheats. They had been tasked to finalise plans for more information sharing on account holders and their revenues by the end of this year, but Austria and Luxembourg blocked progress.

The two banking-secrecy stalwarts have justified their positions by pointing to the fact that the EU has yet to reach such agreements with outside financial hubs, such as Switzerland and Liechtenstein.

“It is not just disappointing that we could not agree ... today — it is incomprehensible,” EU tax commissioner Algirdas Semeta said. “It is out of sync with the mood and resolutions at both EU and international levels.” He predicted that EU leaders would have to now take up the issue at their December 19—20 summit in Brussels.