22 June 2013

FT: EU fails to agree on bank bailout rules

EU finance ministers failed to reach a deal on new rules for bailing out European banks, forcing them to reconvene next week for a make-or-break session ahead of a summit that was supposed to set the course for a future EU "banking union".

The talks broke down over wide-ranging disputes both within the eurozone and between euro and non-euro countries on how flexible the rules should be in requiring bank creditors and investors to pay for a bank failure in order to spare taxpayers from shouldering most of the bailout burden in the future.

The biggest problem became the varying demands from multiple countries to have the rules tailored to their specific financial systems. A German-led group of countries insisted that such “bail-in” rules be of limited flexibility, giving national authorities little choice of when to force losses on equity and bond holders after a bank collapses, as well as limited room to choose which kinds of liabilities can be exempted from such bail-ins. But a much wider range of countries, including France and many non-euro countries, urged more flexibility for Member States to tailor bailouts to specific situations. Diplomats said that despite multiple bilateral deliberations throughout the night, France refused to give in to German and Dutch demands for stricter rules.

Anders Borg, the Swedish finance minister, was particularly adamant, saying it would be “very dangerous” to force non-euro countries – whose banks have no access to the European Central Bank for liquidity or to the eurozone’s €500 billion bailout fund for recapitalisation cash – to abide by the same rules as euro members. “I cannot see why the euro countries are trying to push the non-euro countries [into a system] that is very unsuitable for the rest of Europe”, Mr Borg said. Officials said talks were focusing on ways to give non-euro countries more options when they became bogged down.

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