EU ministers seal banking agreement on eve of Brussels summit

Finance ministers say they have reached deal after lengthy negotiations on how to deal with failing banks in the eurozone

EU finance ministers announced late on Wednesday night that they had reached agreement on a new system for dealing with eurozone banks, under intense pressure to seal the accord on their new flagship policy in advance of a two-day Brussels summit opening on Thursday.

EU officials announced a "crucial breakthrough" on a fiscal backstop for rescuing or winding up failing banks in the Eurozone at 3am on Wednesday. But the details were inconclusive from the meeting of the Eurozone countries and were still being haggled over by all 28 EU finance ministers in Brussels 18 hours later.

All the signs were that Germany had prevailed in its reluctance to assent to any pooled liability for the eurozone banking sector under the new regime of eurozone supervision known as the banking union.

The key issues were: who pays to wind up or recapitalise a failing eurozone bank, and who decides when a bank should be closed down.

EU officials said the breakthrough meant a "common" or pooled eurozone backstop would be available for dealing with troubled banks. The common backstop would not be available until 2025 at the earliest and would consist of a €55bn (£46bn) pot of money raised by the banks themselves via a levy over the decade from 2015.

In the meantime, Germany conceded that the eurozone's €500bn bailout fund, the European stability mechanism, could be used as a last resort for rescuing failed banks if governments did not have enough money.

Earlier the agreement had looked fragile, hedged with conditions and caveats, and was attacked as inadequate by the European Central Bank, whose credibility is at stake as the new supervisor of most of the eurozone banking sector under the new regime.

EU leaders need to agree on the banking wind-up arrangements, known as the single resolution mechanism and the single resolution fund, at their summit on Thursday and Friday if the deadlines for getting the new system operational are to be met. Two weeks of late-night meetings in Brussels and Berlin have pushed issues to the brink.

There will be big problems with getting the deals agreed with the European parliament, and with national ratifications of a new treaty between participating governments on the funding of banking resolution.

The French-led group of southern countries, the European commission and the ECB opposed this.

"It's a choice between a banking union that's not perfect, or nothing," said a senior EU official.

In the transitional decade, from 2015, the issue is what happens in a banking crisis. On German insistence, there will be no European response except as a last resort; nor will there be any escape from adding to national debt burdens to fund a bailout.

The governments concerned would also be able to ask to tap the ESM in an emergency, but according to existing restrictive rules. This was the main German concession.

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