News / Economy

Europe Sketches Plan to Close Troubled Banks

Germany's Finance Minister Wolfgang Schaeuble listens to his Lithuanian counterpart Rimantas Sadzius (R) during a European Union finance ministers meeting in Brussels, Dec. 10, 2013.
Germany's Finance Minister Wolfgang Schaeuble listens to his Lithuanian counterpart Rimantas Sadzius (R) during a European Union finance ministers meeting in Brussels, Dec. 10, 2013.
Reuters
Eurozone countries edged closer on Tuesday to agreeing a plan to close ailing banks and sharing the costs, a move that would pave the way for a fundamental reform to underpin the currency and its banks.
 
After a financial storm that toppled banks and dragged down states from Ireland to Spain, countries examined a fresh blueprint outlining what to do when a bank fails, a critical second pillar of a wider reform dubbed banking union.
 
The draft plan, circulated among EU ministers at a meeting in Brussels, spells out how a new agency may close failing banks in the eurozone and crucially, how the cost can be shared out among countries in the scheme.
 
If agreed, this would overcome the long-standing objections of Germany and reinforce the scheme. But it remains to be seen if France, Spain and others will sign up.
 
Europe's biggest economy has so far opposed the use of eurozone money to repair banks in countries such as Spain because it does not want to end up footing the bill.
 
In return, however, Germany wants a new treaty agreement between governments in the scheme, a step which will be cumbersome at the very least.
 
Furthermore, any such sharing of eurozone money should only be possible one decade after the start of scheme - set for 2015. Lastly, Germany wants to skew voting on some decisions about closing banks according to the size of the country.
 
The deal, which will not be finalized before next week, is to build the second pillar of the banking union, viewed as essential to shore up the currency-sharing group against future debt and financial crises.
 
Sealing an accord would draw a line under a financial crisis that toppled banks and dragged down governments from Ireland to Spain.
 
Building this union has proved divisive as it requires countries to surrender sovereignty and that they pay towards repairing banks in neighboring states.
 
Financial markets have paid little attention to the debate but there is a risk that failure to reach a final agreement could be taken as a sign the bloc is not capable of protecting itself.
 
European leaders want a deal by the end of the year so that banking union can begin by 2015, including a quicker introduction of rules to impose losses on senior bondholders and large depositors in failing banks, as was done in Cyprus.
 
Such a move would satisfy Germany, which has for long called for such a fast-tracking of rules, which were originally planned only for 2018.
 
In the draft paper, officials proposed a starting date of January 2016, an acceleration that would have significant implications for bondholders as well as savers with more than 100,000 euros ($137,200) in their account.
 
“The council [of ministers] has sent a strong signal to markets that we want to protect taxpayers and that the time for bailout is over,” Germany's finance minister, Wolfgang Schaeuble, told ministers earlier on Tuesday.
 
Such a move provoked a nervous response from a number of European Union finance ministers on Tuesday, worried that the rules' early introduction could rattle markets.
 
Italian Finance Minister Fabrizio Saccomani made it clear that he would only support Germany in return for concessions on a common eurozone back-up plan for failing banks.
 
“We are available to discuss it ... if there is a single resolution fund and common backstops are clearly agreed upon and in place,” he told his peers in remarks broadcast to reporters.
 
Bridging the Divide
 
A deal among governments on how to wind down banks by the self-imposed year-end deadline is important because it will allow countries to deal with potential problems revealed by a health check of banks by the ECB next year.
 
Failure to reach agreement would reflect badly on the bloc's politicians, whose response to the crisis has at times been slow and chaotic.
 
“I would expect that ...we will manage to narrow down the differences today,” said Joerg Asmussen, a member of the European Central Bank's Executive Board.
 
“I do not expect that we will reach a final agreement already today,” he said, adding that he had “penciled in” another meeting of EU ministers before the bloc's leaders meet on December 19-20.
 
The most contentious problems are: who decides and who pays?
 
For the bank union to work, an agency has to get the power to close down a bank. Most countries would like this job to go to the EU's executive arm, the European Commission.
 
But Germany, Finland and Slovakia would prefer such decisions to be made by all EU ministers, especially where the closure of the bank would require them to pitch in help.
 
The draft proposal leaves a question over the issue, proposing a number of different options when taking the decision to close a troubled bank.

You May Like

Video One Year After Thai Coup, No End in Sight for Military Rule

Since carrying out the May 22, 2014 coup, the general has retired from the military but is still firmly in charge More

Goodbye, New York

This is what the fastest-growing big cities in America have in common More

Job-Seeking Bangladeshis Risk Lives to Find Work

The number of Bangladeshi migrants on smugglers’ boats bound for Southeast Asian countries has soared in the past two years More

This forum has been closed.
Comments
     
There are no comments in this forum. Be first and add one

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Turkey's Main Opposition Party Hopes for Election Breakthroughi
X
May 22, 2015 10:23 AM
Turkey’s main opposition Republican People’s Party has sought an image change ahead of the June 7 general election. The move comes after suffering successive defeats at the hands of the Islamist-rooted AK Party, which has portrayed it as hostile to religion. Dorian Jones reports from the western city of Izmir.
Video

Video Turkey's Main Opposition Party Hopes for Election Breakthrough

Turkey’s main opposition Republican People’s Party has sought an image change ahead of the June 7 general election. The move comes after suffering successive defeats at the hands of the Islamist-rooted AK Party, which has portrayed it as hostile to religion. Dorian Jones reports from the western city of Izmir.
Video

Video Europe Follows US Lead in Tackling ‘Conflict Minerals’

Metals mined from conflict zones in places like the Democratic Republic of Congo are often sold by warlords to buy weapons. This week European lawmakers voted to force manufacturers to prove that their supply chains are not inadvertently fueling conflicts and human rights abuses. Henry Ridgwell reports from London.
Video

Video Class Tackles Questions of Race, Discrimination

Unrest in some U.S. cities is more than just a trending news item at Ladue Middle School in St. Louis, Missouri. As VOA’s Kane Farabaugh reports, it’s a focus of a multicultural studies class engaging students in wide-ranging discussions about racial tensions and police aggression.
Video

Video Mind-Controlled Prosthetics Are Getting Closer

Scientists and engineers are making substantial advances towards the ultimate goal in prosthetics – creation of limbs that can be controlled by the wearer’s mind. Thanks to sophisticated sensors capable of picking up the brain’s signals, an amputee in Iceland is literally bringing us one step closer to that goal. VOA’s George Putic reports.
Video

Video Afghan Economy Sinks As Foreign Troops Depart

As international troops prepare to leave Afghanistan, and many foreign aid groups follow, Afghans are grappling with how the exodus will affect the country's fragile economy. Ayesha Tanzeem reports from the Afghan capital, Kabul.
Video

Video Poverty, Ignorance Force Underage Girls Into Marriage

The recent marriage of a 17-year old Chechen girl to a local police chief who was 30 years older and already had a wife caused an outcry in Russia and beyond. The bride was reportedly forced to marry and her parents were intimidated into giving their consent. The union spotlighted yet again the plight of many underage girls in developing countries. Zlatica Hoke reports poverty, ignorance and fear are behind the practice, especially in Asia and Africa.
Video

Video South Korea Marks Gwangju Uprising Anniversary

South Korea this week marked the 35th anniversary of a protest that turned deadly. The Gwangju Uprising is credited with starting the country’s democratic revolution after it was violently quelled by South Korea’s former military rulers. But as Jason Strother reports, some observers worry that democracy has recently been eroded.
Video

Video California’s Water System Not Created To Handle Current Drought

The drought in California is moving into its fourth year. While the state's governor is mandating a reduction in urban water use, most of the water used in California is for agriculture. But both city dwellers and farmers are feeling the impact of the drought. Some experts say the state’s water system was not created to handle long periods of drought. Elizabeth Lee reports from Ventura County, an agricultural region just northwest of Los Angeles.
Video

Video How to Clone a Mammoth: The Science of De-Extinction

An international team of scientists has sequenced the complete genome of the woolly mammoth. Led by the Swedish Museum of Natural History in Stockholm, the work opens the door to recreate the huge herbivore, which last roamed the Earth 4,000 years ago. VOA’s Rosanne Skirble considers the science of de-extinction and its place on the planet
Video

Video Blind Boy Defines His Life with Music

Cole Moran was born blind. He also has cognitive delays and other birth defects. He has to learn everything by ear. Nevertheless, the 12-year-old has had an insatiable love for music since he was born. VOA’s June Soh introduces us to the young phenomenal harmonica player.

VOA Blogs

World Currencies

EUR
USD
0.8957
JPY
USD
120.93
GBP
USD
0.6393
CAD
USD
1.2199
INR
USD
63.470

Rates may not be current.