Franco-German divisions cloud efforts to fix broken banks

Mon Oct 14, 2013 7:24pm EDT
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By John O'Donnell and Robin Emmott

LUXEMBOURG (Reuters) - The euro zone wrestled on Monday with the question of who should pay for a clean-up of bust banks, as Franco-German divisions cast a cloud over efforts to seal a landmark reform and draw a line under the region's financial crisis.

As Spain and Ireland prepare to end their reliance on international aid that shored up their banks, finance ministers sought to devise a long-term action plan to deal with problems likely to be uncovered in bank health checks next year.

Issues remained over how much the euro zone's rescue fund, the European Stability Mechanism, will be able to help, as well as over how to build a single banking framework for the bloc and resolve future problems together in a banking union.

"It is a priority, an essential project," France's Finance Minister Pierre Moscovici told reporters after the meeting in Luxembourg. "A weak banking union is not a banking union."

France is leading a group including Spain and Italy in demanding that the ESM, established to provide financial help to euro zone governments, act as a clear backstop for unstable banks in the euro area, in time for when the European Central Bank's health test results are announced some time in 2014.

Germany, Europe's largest economy, along with the Netherlands and Finland want conditions attached to any ESM involvement to prevent the clean-up costs being foisted on them.

"France defends the possibility of using the European Stability Mechanism as a backstop within the banking union," Moscovici said.

Bank health checks by the European Central Bank are a critical step in establishing a single banking framework for the euro zone, giving credibility to ECB supervision and paving the way for the bloc to cooperate on saving failing banks.   Continued...

Greece's Finance Minister Yannis Stournaras talks to Executive Board Member of the European Central Bank (ECB) Jorg Asmussen (R) during a eurozone finance ministers meeting in Luxembourg October 14, 2013. REUTERS/Francois Lenoir