LUXEMBOURG: Eurozone finance ministers try to keep a push for banking sector reforms on track Thursday, to ensure it is creditors who foot the bill for future bank rescues, not the weary taxpayer.
The aim is a "banking union," a new regulatory framework to prevent a repeat of the debt crisis by letting European Union authorities come in to save or close down any bank in trouble before it brings down the whole system.
The next step is setting up what is known as the Single Resolution Mechanism but there are sharp differences over how it should work, especially alongside national authorities jealous of their mandate.
There are also serious questions about who ultimately controls it, how it would be funded and how much money it would need -- recent bank rescues have cost tens of billions of euros (dollars).
The SRM puts this burden on bank creditors, which includes depositors, who will be ranked in order of their contribution to future 'bail-ins' but the devil is in the details.
A controversial Cyprus rescue in March bailed-in larger savers in its two biggest banks to pay for their restructuring but the move sparked popular outrage that deposits were no longer sacrosanct. An EU source said that with the bail-in principle accepted, a major concern was for governments to have some flexibility in how to operate it.
"We want some discretion ... flexibility whereby we can treat creditors" according to their exposure and importance, the source said. For example, it would be counter-productive to bail-in a creditor that would be badly weakened as result, having a knock-on effect on the wider economy, said the source.
Negotiating this flexibility and then ensuring that all member states follow the same rules is going to prove difficult, the source added.
Last year, EU leaders took the first step towards a banking union when they approved the Single Supervisory Mechanism which centralises oversight of the eurozone's largest lenders under the European Central Bank.
The ECB will in turn coordinate regulation with non-euro countries such as Britain, home to some of the largest financial groups in the world. A third banking union element will guarantee bank deposits, reassuring savers who otherwise might be tempted to run on a struggling bank.
"There are still continuing strong disagreements" on all these issues, another EU source said ahead of the talks Thursday afternoon. "Finding the right balance is not easy (but) ... there is goodwill, a desire to do a deal."
Ministers will review the Cyprus bailout and recent progress in twice bailed-out Greece, where the government's fiercely contested decision to close the state broadcaster has created fresh uncertainty.
Finance ministers are also expected to formally approve a 7-year extension on Ireland's and Portugal's bailout loans and endorse fiscal targets agreed last month as Brussels tries to get all 27 member states on the same economic page.
Getting budget deficits below the 3.0 percent of Gross Domestic Product limit is crucial to reducing total public debt -- the source of all the problems -- to less than the 60 percent EU ceiling from the now average 90 percent.
Ministers will also formally endorse Latvia's joining the eurozone in January when it becomes the 18th member.
Latvia's accession "is very positive" as a sign of faith in the euro, an EU source said, adding that the country's finance minister would join his 17 peers in Luxembourg when they are expected to formally endorse Riga's membership.
After the eurozone meeting Thursday they are joined by the 10 non-euro colleagues Friday, picking up the discussion.
indiatimes.com
The aim is a "banking union," a new regulatory framework to prevent a repeat of the debt crisis by letting European Union authorities come in to save or close down any bank in trouble before it brings down the whole system.
The next step is setting up what is known as the Single Resolution Mechanism but there are sharp differences over how it should work, especially alongside national authorities jealous of their mandate.
There are also serious questions about who ultimately controls it, how it would be funded and how much money it would need -- recent bank rescues have cost tens of billions of euros (dollars).
The SRM puts this burden on bank creditors, which includes depositors, who will be ranked in order of their contribution to future 'bail-ins' but the devil is in the details.
A controversial Cyprus rescue in March bailed-in larger savers in its two biggest banks to pay for their restructuring but the move sparked popular outrage that deposits were no longer sacrosanct. An EU source said that with the bail-in principle accepted, a major concern was for governments to have some flexibility in how to operate it.
"We want some discretion ... flexibility whereby we can treat creditors" according to their exposure and importance, the source said. For example, it would be counter-productive to bail-in a creditor that would be badly weakened as result, having a knock-on effect on the wider economy, said the source.
Negotiating this flexibility and then ensuring that all member states follow the same rules is going to prove difficult, the source added.
Last year, EU leaders took the first step towards a banking union when they approved the Single Supervisory Mechanism which centralises oversight of the eurozone's largest lenders under the European Central Bank.
The ECB will in turn coordinate regulation with non-euro countries such as Britain, home to some of the largest financial groups in the world. A third banking union element will guarantee bank deposits, reassuring savers who otherwise might be tempted to run on a struggling bank.
"There are still continuing strong disagreements" on all these issues, another EU source said ahead of the talks Thursday afternoon. "Finding the right balance is not easy (but) ... there is goodwill, a desire to do a deal."
Ministers will review the Cyprus bailout and recent progress in twice bailed-out Greece, where the government's fiercely contested decision to close the state broadcaster has created fresh uncertainty.
Finance ministers are also expected to formally approve a 7-year extension on Ireland's and Portugal's bailout loans and endorse fiscal targets agreed last month as Brussels tries to get all 27 member states on the same economic page.
Getting budget deficits below the 3.0 percent of Gross Domestic Product limit is crucial to reducing total public debt -- the source of all the problems -- to less than the 60 percent EU ceiling from the now average 90 percent.
Ministers will also formally endorse Latvia's joining the eurozone in January when it becomes the 18th member.
Latvia's accession "is very positive" as a sign of faith in the euro, an EU source said, adding that the country's finance minister would join his 17 peers in Luxembourg when they are expected to formally endorse Riga's membership.
After the eurozone meeting Thursday they are joined by the 10 non-euro colleagues Friday, picking up the discussion.
indiatimes.com
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