By Jan Strupczewski
BRUSSELS, Dec 15 (Reuters) - European Union leaders will
focus on trying to complete a banking union and expanding the
job of the euro zone bailout fund when they discuss priorities
for euro zone integration on Friday, putting off contentious
issues such as a budget for the currency area.
Leaders of the 27 countries that will remain in the EU after
Britain leaves in 2019 are discussing ways to deepen euro zone
integration, to give direction to six months of more detailed
work by finance ministers.
The aim is to better protect the 19 countries using the euro
from financial crises and help rally the EU around it.
But the main players in the debate -- French President
Emmanuel Macron, German Chancellor Angela Merkel and European
Commission President Jean-Claude Juncker -- have widely
differing views on what form greater integration should take.
One of the reform ideas that appears to have the broadest
support is further strengthening the euro zone's banking sector
by gradually introducing a pan-European scheme to protect bank
deposits across borders.
"A big part of what we're going to discuss today is the
whole idea of a banking union and guaranteeing people's savings
and deposits across the European Union," Irish Prime Minister
Leo Varadkar told reporters on entering the talks.
"If a bank runs into trouble or a bank collapses in one
European country, we'll all stand together to protect the
savings of the people who put their money into it."
NOT ALL EQUAL
But Germany and the Netherlands insist that the deposit
guarantees can only become reality when risks in the banking
sector are substantially reduced.
This should be done through cutting the number of bad loans
banks have and adjusting the risk weighting on government bonds
to better reflect the likelihood of sovereign default.
"It's a fact that not all government bonds are created
equal. The associated risk needs to be reflected on balance
sheets," Dutch Prime Minister Mark Rutte said.
The chairman of EU leaders, Donald Tusk, has said there is
"broad convergence" on the idea of transforming the euro zone
bailout fund, the ESM, into a European Monetary Fund and making
it an emergency backstop for the euro zone's bank resolution
fund -- an idea that has been on the cards since 2013.
The new fund, whose final name has yet to be decided, would
handle all future bailouts, cutting out the International
Monetary Fund, which has clashed with euro zone governments over
debt relief for Greece in connection with its latest bailout.
But at the heart of the debate are more contentious issues,
such as creating a post of finance minister and a budget for the
euro zone and simplifying EU budget rules.
Paris wants a euro zone budget of several hundred billion
euros, while Berlin wants no budget at all. The Commission is
proposing a euro zone line in the existing EU budget.
Officials also talk of a "rainy day fund", an unemployment
insurance scheme and a fund to support investment in crisis.
EURO ZONE FINANCE MINISTER?
Rutte said healthy national finances were the best
protection against external economic shocks and that there was
no need for a special euro zone budget.
"I am not in favour of one big European shock absorption
fund, but 19 smaller ones. These being the countries themselves
and their ability to deal with crises individually," Rutte said.
Macron would also like to see a euro zone finance minister
in charge of the euro budget and the bailout fund. Germany is
sceptical, unsure what powers such a position would carry.
The Commission is proposing a third option - a European
Minister of Economy and Finance who would be a senior Commission
official in charge of all EU money, bailout fund included, and
accountable to the European Parliament.
This is anathema to euro zone governments, which see it as a
power grab by EU institutions. Euro zone ministers say the 500
billion euro lending capacity of the bailout fund is ultimately
backed by their national budgets, so it cannot be EU money.
Rutte on Friday backed expanding the responsibilities of the
bailout fund, but said it must remain government-controlled, and
that strengthening the banking sector was a more pressing need
than any new additions to the euro zone set-up.
Rutte, like Germany and Slovakia, is pushing to introduce a
sovereign insolvency mechanism, which would put market pressure
on governments to conduct prudent fiscal policy. Countries with
huge public debts, like Italy, are against.
(Reporting By Jan Strupczewski; Editing by Kevin Liffey)
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