(MENAFN- AFP) EU finance ministers on Tuesday edged towards a difficult compromise on a Banking Union they hope will prevent a repeat of crippling crises and inject new impetus into the economy.
Ministers voiced optimism they would reach a "political accord" during what are expected to be marathon talks in Brussels but several predicted a further emergency meeting would be needed to thrash out the details.
The ministers broke off talks in the late afternoon and then resumed at 7:30pm (1830 GMT), with one EU official warning "it is becoming increasingly clear it could be very late."
The aim is to create a pan-European body that can wind up failing lenders and stop damage in the banking sector bleeding through into the real economy.
This body -- dubbed the Single Resolution Mechanism (SRM) -- would also have a pot of cash at its disposal to deal with the costs of collapsed banks so the taxpayer does not have to pick up the bill, a situation which forced Ireland and Cyprus to seek international bailouts.
The SRM would go hand-in-hand with an already agreed Single Supervisory Mechanism under which the European Central Bank will scrutinise the top 130 or so eurozone banks directly and thousands more indirectly via national authorities.
While all agree on the need for a body to close down tottering banks, it is politically tricky as it would mean handing control over national banks to Brussels.
Divisions on how Banking Union works
Divisions remain on several key issues.
Firstly, there are disagreements over the mechanism's scope. The European Commission, backed by France, wants it to have the power to shut down any of the eurozone's 6,000 banks if they get into difficulties.
However, European powerhouse Germany believes the mechanism should have jurisdiction only over the 130 top banks under ECB supervision -- perhaps with an eye on its own regional banking sector which would then not fall under EU control.
EU sources said this was the current option being discussed.
Ministers are also scrapping over who controls the new body.
The Commission wants the final say over whether and how a failing bank is wound up but Germany would prefer the last word to lie with member states.
The EU sources said the current view was that an SRM board would take the initial decision to wind up a bank, with the Commission having a right of review within a set time limit.
If the Commission objected, the issue would go to the 28 member states to intervene but if they did not, then the board decision would stand, the sources said.
Finally, there is discord over whether the fund -- which the Commission wants to total some 55 billion euros ($76 billion) -- should be a centralised European pot or come under national control.
French Finance Minister Pierre Moscovici appeared to signal a compromise on this thorny issue.
"The resolution fund has to be a genuinely single fund ... with the same rules for everyone and coordinated decision mechanisms ... which is capable of responding to difficult situations of bankruptcy," Moscovici told reporters.
But he suggested the fund could be made up of "national mechanisms initially with a transition phase" leading eventually to a pan-European pot.
The EU sources said a transition arrangement was being discussed, starting with national funds which each year become more available to other member states until after 10 years there is just one overall fund.
"We are constantly moving forward. I think we have today the elements to work out a political agreement," Moscovici said.
Others, however, were less optimistic.
European Central Bank Executive Board member Joerg Asmussen said that while he saw differences narrowing, "I do not expect that we will reach a final agreement."
The ECB wants the SRM to become active at the same time as the SSM late next year.
The ministers are under a certain pressure to cut a deal before an EU leaders summit to finalise the Banking Union on 19-20 December.
This would then allow time to nail down a final proposal with the European Parliament, whose mandate ends in May.
Meanwhile, the head of the International Monetary Fund, Christine Lagarde, urged progress.
"The European Banking Union is clearly another milestone ... in the European construction. It was all very well to have the monetary union but it will be very valued to have a Banking Union as well," she told the European Parliament.
"We beg, we advocate, we urge that the most simple, the most efficient, the most fair, the most predictable system be considered."
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