EU talks on failing banks break down

European Union talks on how to assign losses at failing banks broke down as conflicts on "core issues" doomed 19 hours of talks in Luxembourg.

Finance ministers plan to reconvene on June 26 in search of an agreement on proposed rules for bank resolution and recovery in time for an EU summit that begins the following day in Brussels.

"There are still core issues outstanding," Irish Finance Minister Michael Noonan said as he left the meeting on early Saturday. "We have another meeting next (this) week and there's no guarantee it'll reach a conclusion."

The new rules are intended to set standards for how to prop up or shut down failing banks, along with requirements for the kind of backstops each country must have in place. The draft law adds to the EU's push for common bank supervision in the eurozone and tougher across-the-board standards for authorities.

After more than three years of crisis and bailouts in five eurozone nations, EU leaders have pursued banking union as a way to reassure investors that they can break the cycle of contagion between banks and sovereign debt.

Talks foundered on the question of which creditors face writedowns when banks fail. Some countries demanded more flexibility for national authorities, while others sought strict rules across all 27 EU nations. Ministers considered several ways to set thresholds for losses that would need to be assigned via strict formulas before national discretion would be allowed.

French Finance Minister Pierre Moscovici said he had "no doubt" ministers will reach an agreement next week, while his German counterpart, Wolfgang Schaeuble, said a final deal must be constructed in a way that won't burden taxpayers.

The fight mirrored an earlier battle among eurozone ministers over when countries may seek direct bank aid from the European Stability Mechanism, the currency zone's 500 billion euro ($656 billion) firewall fund. On June 20, eurozone ministers said private investors must be tapped before the ESM will be allowed to step in, once ECB oversight begins and the new tool is in place.

If finance chiefs don't reach a deal on the resolution rules before the EU's summer hiatus, this would jeopardize their ability to reach a deal on the bill with the European Parliament and could delay the EU's follow-on proposal for a single resolution mechanism, said Sharon Bowles, chairwoman of the parliament's economic affairs committee.

"It needs to be handled very carefully," Bowles said. "Telling a citizen their savings are gone and that EU rules stop you from helping out via the taxpayer even if you want to, or stop you from saving small businesses and jobs, is about as political and tough as anything."

During the talks, ministers sought to bridge differences between countries inside and outside the 17-nation eurozone. Austria and the European Commission sought common rules for all 27 EU members, while Sweden led the call for rules that grant more freedom to non-euro nations to prop up banks when financial stability is at risk.

Anders Borg, the Swedish finance minister, said his country isn't "asking for anybody else's money" to take care of its banks. "We think we should have the leeway to do what we think is necessary," he said. "If we are building a very rigid system that can hardly work in practice, this could be something creating more uncertainty in the European economy."

(China Daily 06/24/2013 page14)