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As Spain and Ireland prepare to end their reliance on international aid that shored up their banks, finance ministers sought to devise a long-term action plan to deal with problems likely to be uncovered in bank health checks next year. Issues remained over how much the eurozone's rescue fund, the European Stability Mechanism, will be able to help, as well as over how to build a single banking framework for the bloc and resolve future problems together in a Banking Union. "It is a priority, an essential project", France's Finance Minister Pierre Moscovici told reporters after the meeting in Luxembourg. "A weak Banking Union is not a Banking Union."
France is leading a group including Spain and Italy in demanding that the ESM, established to provide financial help to eurozone governments, act as a clear backstop for unstable banks in the euro area, in time for when the European Central Bank's health test results are announced some time in 2014. Germany, Europe's largest economy, along with the Netherlands and Finland want conditions attached to any ESM involvement to prevent the clean-up costs being foisted on them.
"France defends the possibility of using the European Stability Mechanism as a backstop within the Banking Union", Moscovici said. The divisions in the 17-nation currency area were underlined by Moscovici's blunt criticism of Germany before the meeting. In a new book to be published this week, he accused Berlin of holding up progress on Banking Union to protect its own 'strange' financial system of regional banks that are "deeply intertwined ... with local political circles". "What Germany fears ... is ... a loss of political control over its banks, which means in the final analysis a loss of sovereignty", Moscovici wrote in "Battles to resurrect France".
Asked to outline the hurdles that remain on Banking Union, Jeroen Dijsselbloem, who chaired the meeting of eurozone finance ministers, replied: "How much time do you have?" before listing a range of issues such as establishing a fund and agency to close or salvage troubled banks. Dijsselbloem said ESM direct aid for banks would only be available under strict conditions, and could not say if this possibility would be ready in time for the bank health checks.
See also Germany warns that direct aid for banks would require law change, 15.10.13