(MENAFN- AFP) EU finance ministers edged closer Wednesday to a final deal on a banking union which will hand Brussels unprecedented new powers to prevent failing banks from wrecking the economy.
"The problem is not the accord itself ... but there are many technical and bureaucratic problems to resolve," an EU diplomatic source said.
The banking union plan was drawn up in response to the financial and then debt crises which brought down many banks and nearly drove the eurozone to its knees as governments had to be bailed out after rescuing their lenders.
The new emerging framework involves a big pooling of sovereignty and would mark a big step towards EU cross-border authority, explaining in large part why the talks have taken so long to get this far.
"There are some issues open but I think we'll be able today to make a deal, a fair deal, a deal that can be put before the European Parliament," said Lithuanian Finance Minister Rimantas Sadzius, whose country holds the rotating presidency of the EU.
Determined to prevent a repeat of the crisis, the European Union aims to put in place a system to regulate banks and close down failing lenders.
A key sticking point has been who will have the final say in deciding to close a bank and how this will be paid for.
The plan is for the banks to contribute to a fund for this purpose, phased in over 10 years, so that the taxpayer will no longer have to foot the bill.
The problem is that the fund is unlikely to be enough in the interim period and there are sharp differences over how it could find additional or "backstop" financing.
According to a draft document seen by AFP, bridge financing could come either from the member states or from the eurozone's own rescue fund, the European Stability Mechanism.
Used for national bailouts, drawing on the ESM usually comes with tough policy conditions, but it was used controversially to provide some 41 billion euros to Spanish banks directly in 2012 without such terms.
The document says that the final winding up fund -- estimated at 55 billion euros -- will also have a backstop to provide additional finance if needed, with the banking sector ultimately liable for it.
Finance ministers from the 28-country bloc were positive Wednesday that a deal was in sight, with morale boosted following an agreement late Tuesday on a deposit guarantee scheme to protect savers.
"Tonight (Wednesday), we will leave, I am certain, with a decisive agreement, a historic agreement," French Finance Minister Pierre Moscovici said.
Eurogroup chief Jeroen Dijsselbloem was also upbeat, saying: "The outline of compromise on all these issues are beginning to come clear."
European Commission chief Jose Manuel Barroso urged ministers to reach a deal, saying: "I think that with a little bit of the spirit of Christmas compromise we can do it."
Ministers need to reach an agreement so it can be submitted for approval to an EU leaders two-day summit from Thursday.
German Finance Minister Wolfgang Schaeuble suggested that compromises can be made, saying "in essence, we are here to find solutions" on the issue of interim funding.
Swedish Finance Minister Anders Borg meanwhile warned the banking union was not a 'magic bullet' that would give Europe the boost it needed for its struggling economy.
"This seems to be ... a complex banking union. I'm a bit worried it will not give a confidence boost to the recovery of the European economy," he said.
An agreement is needed by year's end to enable the adoption of legislation before European Parliament elections in May and the replacement later in the year of the European Commission.
The Parliament has been critical of many aspects of banking union and subsequent discussions on its final shape are likely to be as difficult as those up to now.
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