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 remain to be resolved in discussions Wednesday.
An agreement will help bolster efforts to complete a proposed banking union that officials hope will boost confidence in the sector and prevent bank failures from threatening the financial health of governments. One of the reasons why Europe got into such a big financial mess was that governments had to step in to save their banks when 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 the morning, before resuming discussions with colleagues from the wider 28-country EU.
Jeroen Dijsselbloem, the Dutch finance minister who also heads the Eurogroup, said ministers had "come a long way" on resolving how to pay for rescuing, or closing, sick or badly run banks.
There's been a lengthy debate about how to pay for that insurance policy, and whether European taxpayers should be on the hook. Germany, Europe's biggest economy, insisted that bank rescue costs be borne by banks themselves.
The finance ministers are trying to reach agreement before a European Union summit of leaders begins Thursday in Brussels.
Olli Rehn, the EU's top monetary affairs commissioner, said eurozone ministers early Wednesday arrived at a compromise that represents a "crucial breakthrough" for a banking union.
Under the terms of the agreement, banks will provide 55 billion euros ($75.6 billion) over 10 years to pay for shutting down or spinning off ailing banks.
Until then, governments are supposed to be mostly responsible for their own country's banks. They have the power to impose levies and if need be, provide public cash. 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.
"Here I see major problems," said Zsolt Darvas, a senior fellow at Bruegel, a Brussels-based think tank specializing in economics issues. He said the plan for the transitional period 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's assessment of the overall plan: "The glass is half-empty."
To get to a final agreement, the finance ministers must still resolve other issues, including which powers the EU's executive and national governments should have in deciding how to deal with troubled banks. Ministers also need to decide on the legal framework for the rescue plan and fund, which will likely require an intergovernmental treaty.