By Jan Strupczewski
BRUSSELS (Reuters) – European Union finance ministers will discuss on Monday how to measure the risks to which EU banks are exposed and how and when to reduce them, so the EU can complete a banking union that includes an EU-wide bank deposit guarantee scheme.
The discussion is part of a plan for deeper integration of the 19 countries that share the euro and those who join it in coming years.
“We will talk … about the definition of risk reduction, how can you measure how far we have gone with risk reduction and how to further reduce risks, by how much and when,” a senior euro zone official involved in preparing the discussions said.
The discussion is key to getting the euro zone’s largest economy, Germany, to agree to set up the European Deposit Insurance Scheme (EDIS), a Europe-wide plan to guarantee all deposits up to 100,000 euros in any euro zone bank.
Berlin sees the merits of EDIS, but it is concerned that soon its citizens may be asked to bail out depositors in countries where banks are more fragile.
Berlin argues that the sovereign debt crisis of 2010-2015 has left banks in some countries vulnerable. It wants those banks to reduce their bad loans and re-assess how much money they invest in the bonds of various governments, to re-balance their risk exposure.
Once such “legacy issues” are dealt with, EDIS could become reality, Germany and several other countries say. But it’s not clear how to assess when the risks have fallen enough to introduce EDIS, who should make the assessment and what criteria they should use.
“This has not been decided yet, it is under discussion,” the senior euro zone official said, adding ministers will have the first chance to express their views on that on Monday.
Linked to that topic is another discussion that euro zone ministers will have on Monday on turning the euro zone bailout fund into a European Monetary Fund. Germany wants countries that apply for emergency funds from the European Monetary Fund to automatically undergo debt restructuring.
But many senior euro zone officials, including the head of the bailout fund, Klaus Regling, believe debt restructuring should not be done automatically and that it should be preceded by a debt sustainability analysis.