E.U. Seeks Rules on Failing Banks ; Finance Ministers Have Strong Incentives to Make Deals during Negotiations

By Kanter, James | International Herald Tribune, June 21, 2013 | Go to article overview

E.U. Seeks Rules on Failing Banks ; Finance Ministers Have Strong Incentives to Make Deals during Negotiations


Kanter, James, International Herald Tribune


European Union finance ministers began two days of meetings on Thursday in Luxembourg on regulations seen as critical to easing threats to the euro.

European Union finance ministers began two days of meetings on Thursday to hammer out rules for rescuing or shutting failing banks, regulations seen as critical to easing threats to the euro.

Much of the urgency for transformative measures in Europe has ebbed since the European Central Bank calmed markets by promising to buy bonds from troubled euro zone countries. Germany, also, has resisted making new pledges that could put it on the line to help other members of the euro zone before a national election in September.

Yet ministers have strong incentives to clinch deals -- however modest -- during the marathon negotiating session in Luxembourg.

Laying the groundwork for a so-called banking union could help prevent a recurrence of the chaos that ensued during a bailout for Cyprus in March, when governments and international lenders argued over where to impose losses on investors in the country's troubled banks.

Putting such structures in place also could prove vital for financial stability if banks reveal new vulnerabilities when their accounts come under scrutiny as part of a new round of so-called stress-test audits. These are expected to be conducted by the European Central Bank, probably next year.

The goal of the ministers' talks was to craft policies that "finally close the vicious circle between the banking crises and sovereign crises" and to "definitively put behind us the financial crisis that has weighed on Europe since 2008," Pierre Moscovici, the French finance minister, said as he arrived at the session at a recently refurbished facility for E.U. meetings that is perched on a plateau above Luxembourg City.

A measure of success at the meetings would also allow the leaders of the Union's 27 member states to endorse progress toward putting banks on a firmer footing at their summit meeting next week in Brussels, their last scheduled session before the summer.

Even so, the finance ministers' meetings are likely to result in incremental steps, rather than anything transformative, such as the creation of structures allowing Europe to operate more like the United States, with a clear lender of last resort to guarantee government or bank debt.

The first item on the agenda Thursday, during a meeting of the so- called Eurogroup -- the 17 ministers from the euro area -- was making a final determination of the conditions under which countries can draw on a shared bailout fund to inject money directly into troubled banks.

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E.U. Seeks Rules on Failing Banks ; Finance Ministers Have Strong Incentives to Make Deals during Negotiations
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