Irish push for a deal on bank resolution

Leaders go into the European Council this evening (27 June) hoping to be able to declare progress towards establishing a banking union, but much depends on the outcome of last night’s extra-ordinary meeting of European Union finance ministers.

The meeting, which was to begin after European Voice went to press, was scheduled in the early hours of Saturday (22 June) when it became clear that finance ministers gathered in Luxembourg would fail to reach agreement on new EU-wide rules governing how to pay for helping stricken banks.

However, officials from Ireland, determined to strike a deal before the end of their presidency of the Council of Ministers, believed that a compromise was in reach.

Michael Noonan, Ireland’s finance minister, who chaired the meetings, said after the break-up of talks on Saturday that there was still “no guarantee” of success because although “key issues” of disagreement had “narrowed considerably”, they had still not been resolved.

Split over flexibility

The largest area of disagreement is the extent to which member states should have flexibility to decide how to rescue a failing bank.

Some countries, notably those outside the eurozone and France, want a great amount of leeway to be able to decide the degree of losses to be imposed on bank bondholders and deposit holders, in what is known as a ‘bail-in’.

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Other countries, led by Germany and the Netherlands, are calling for a much tighter approach, fearing that countries would resort to old-fashioned bail-outs – using taxpayers’ money to rescue the banks – which would do nothing to break the link between the fragile eurozone economy and the fragile banking sector.

Under a compromise that was expected to be put to finance ministers last night, Irish officials suggested introducing a minimum threshold that would have to be reached before member states would be allowed some flexibility for assistance “in exceptional circumstances”. The threshold proposed –effectively a minimum amount of bailing in before there can be any bailing out – is 8% of a bank’s liabilities. There is no official deadline for a deal on the bank recovery and resolution directive but member states are keen to claim progress at the European Council, particularly because the European Commission is to propose a fully fledged bank-resolution mechanism, including its own resolution fund, before the summer. Agreement with the European Parliament on a final text will be needed before the recovery and resolution rules can become law.