Will share bank risk if responsibility shared: Germany

Germany also proposed some changes to existing laws that would require a change in the EU treaty

Germany made clear it would agree to sharing more banking risk only if governments first proved they were ready to share more responsibilities as well, at a meeting of European Union finance ministers.

The ministers were discussing a deposit guarantee plan, an idea backed by the European Commission. It wants to propose steps towards a deposit insurance and reinsurance scheme in October, Commission Vice-President Valdis Dombrovskis said. The deposit guarantee would be the third and final element of the EU's banking union. However, Germany opposes the idea, fearing funds it has built up to protect its savers would be used to guarantee deposits in other, less prudent European countries.
 
In a paper prepared for the meeting in Luxembourg, Berlin said that before such a scheme could be introduced, the two existing elements of the banking union - a single supervisor for euro zone banks and a single resolution mechanism - should be fully implemented and tested.

Germany also proposed a scheme for sovereign debt restructuring and some changes to existing laws that would require a change in the EU treaty- a lengthy and risky process.

EU ministers seemed to have adopted the German approach, which could push the creation of the EU deposit guarantee well into the future.

"There is a readiness to go towards a deposit guarantee system that is more European, but this has to be seen in a sequence," Pierre Gramegna, the finance minister of Luxembourg which holds the rotating EU presidency.

"It is all about when the risk-sharing is going to happen. When we see there is more responsibility ... the time will be right to discuss an EU level deposit system," he said. "The door is not closed, but it is a question of timing." The 19 countries sharing the euro have already agreed the first two pillars of the banking union. Those are a single bank supervisor and a Single Resolution Mechanism for winding up failed banks.

Costs are to be covered from a dedicated fund, the Single Resolution Fund. The fund is to become operational from January and will be financed from annual contributions from banks.

But it will only reach its target size of Euro 55 billion after seven years.