EU countries seek deal on early financing of euro zone fund for troubled banks

European Commission Vice President Valdis Dombrovskis at a press conference in Brussels on Oct 21, 2015.
European Commission Vice President Valdis Dombrovskis at a press conference in Brussels on Oct 21, 2015.PHOTO: AFP

BRUSSELS - European Union finance ministers are seeking a deal on Tuesday over how to finance the early stages of a euro zone fund for troubled banks that will go live in January, officials said.

The euro zone's single resolution fund (SRF) will cover the expenses of winding down a bank from the start of next year.

It will be financed from annual contributions from banks, but will only reach its target size of 55 billion euros after seven years, leaving it potentially vulnerable if a banking crisis strikes at the beginning of its operations.

To make sure the fund is solvent from the start, finance ministers gathered in Brussels for a regular meeting will try to agree on how the fund should get an initial bridge financing.

"The bridge financing for the single resolution fund is one of the issues where we need to make progress," European Commission Vice President Valdis Dombrovskis told reporters ahead of the meeting.

The fund "needs to start working in a credible setting so that there is no question about financing availability to the SRF," Mr Dombrovskis added.

The head of the group of euro zone finance ministers, Mr Jeroen Dijsselbloem, is also hoping for a compromise on bridge financing on Tuesday, he told reporters, arriving at the meeting.

The Commission and the European Central Bank argue the SRF should get bridge financing directly from the euro zone bailout fund, the European Stability Mechanism, in the form of an open credit line.

Germany opposes this, arguing the treaty governing the ESM would need to be changed to allow SRF funding, as the ESM is meant to fund only governments.

The compromise may be based on credit lines from euro zone countries to the SRF in the first months of 2016 which may be replaced by an ESM credit line later on, after a treaty change is agreed, EU officials said.

REUTERS