Talks resume on new European banking controls
BRUSSELS (AP) -- European finance ministers appear to have made a breakthrough in their long-standing efforts to deal with failing banks. But other tough issues remained to be resolved in discussions Wednesday.
An agreement will complete the framework for a proposed banking union that officials hope will boost confidence in the sector and prevent bank failures from threatening the financial health of governments. There's already been an agreement to centralize the oversight for the biggest banks in the 17-country eurozone.
One of the reasons why Europe got into such a big financial mess was that governments had to step in to save their banks at various points since the financial crisis first exploded in 2007-8.
The ministers from the 17 European Union countries that use the euro, the so-called Eurogroup, met till the early hours of Wednesday morning, before resuming discussions with colleagues from the wider 28-country EU.
Michael Noonan, Ireland's finance minister, said he and the other Eurogroup ministers had agreed in principle that the banking industry should bear the cost of recapitalizing or liquidating bad banks. But he said many details remained to be worked out.
"As long as the principle `the industry pays' is established, I'll agree it," Noonan said. "And I'm prepared to negotiate the vehicle that would deliver that and ensure that."
There's been a lengthy debate about how to finance the rescue mechanism for insolvent banks, and whether European taxpayers should be on the hook. Germany, Europe's biggest economy, insisted that bank rescue costs be borne by banks themselves.
Olli Rehn, the EU's top monetary affairs commissioner, said eurozone ministers' agreement represented a "crucial breakthrough."
The finance ministers are trying to reach agreement before a summit of EU leaders Thursday in Brussels. EU Commission President Jose Manual Barroso urged ministers Wednesday to reach a deal by the end of the day.
"It's feasible with a bit of festive spirit," Barroso said in a post on Twitter.
Under the terms of the proposed agreement, banks will provide 55 billion euros ($75.6 billion) over 10 years to pay for shutting down, or spinning off, ailing banks in the euro-using countries.
Until then, governments are supposed to be mostly responsible for their own country's banks, for instance by making them pay into a national rescue fund. In the event a country doesn't have adequate resources, it could borrow from the permanent rescue fund of the eurozone, the European Stability Mechanism.
Banks will also have to keep paying into the central fund until all of the bills for closing, or disposing, of an ailing bank are paid.
Mark Hallerberg, professor for public management and political economy at the Hertie School of Governance in Berlin, said making the banks, and not governments, shoulder that burden is key.
"This will make the banks care about bad actors in their midst," he said.
Zsolt Darvas, a senior fellow at Bruegel, a Brussels-based think tank specializing in economics issues, said there were some major problems with the regulatory blueprint. He said the plan for the transitional period still doesn't do enough to break the "doom loop" between insolvent banks and national governments that led to economic havoc in Spain and Ireland.
Darvas' assessment of the overall plan: "The glass is half-empty."
To reach final agreement, the finance ministers must resolve other issues, including which powers the EU's executive and national governments will have in deciding how to deal with failing banks. Ministers also need to decide on the legal framework for the rescue plan and fund, which will likely require an intergovernmental treaty.
EU officials said the banking regulation rules and mechanisms being discussed by the finance ministers are the finishing touches for the planned banking union. But whatever the ministers decide will still have to be approved by the European Parliament and EU leaders to become law.