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EU Ministers Move Closer To Bank Resolution Deal

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European finance ministers on Tuesday took one step further in finalizing an agreement on a joint mechanism to deal with failing banks, despite visible divisions among member countries over the key measures of the plan.

Though the ministers failed to arrive at a precise agreement on Tuesday's meeting, they appeared keen to finalize the banking resolution plan before the EU leaders meeting on December 19-20.

"The Council adjusted its position in the light of negotiations with the European Parliament on proposed legislation harmonizing national rules on bank recovery and resolution and deposit guarantee schemes," the Ecofin said in a statement after the meeting.

Lithuania, which is holding the EU presidency, will work with the Parliament to reach an agreement on the bank recovery and resolution directive on December 11, according to the statement.

The proposed bank recovery and resolution directive is aimed at providing national authorities with common powers and instruments to pre-empt bank crises and to resolve any financial institution in an orderly manner in the event of failure, whilst preserving essential bank operations and minimizing taxpayers' exposure to losses.

The directive would require member states to set up ex-ante resolution funds to ensure that the resolution tools can be applied effectively.

The disagreements pertains mainly to the use of funds and the the number of financial institutions that should be brought under the new rule. There is also dispute over who should have the final say on closing down a troubled bank.

The ministers have proposed January 2016 as the starting date for the resolution mechanism, ahead of the originally planned 2018.

The Council also discussed a draft regulation updating the EU's facility for providing financial assistance in the event of a non-Eurozone member state being in serious difficulties with its balance of payments.

Though the Council's discussion confirmed broad support for the text, Germany, the Netherlands and the U.K. maintained reservations.

Meanwhile, speaking at the European Economic and Social Committee in Brussels, International Monetary Fund Managing Director Christine Lagarde stressed on the importance to break the pernicious links between banks and sovereign balance sheets.

"This can be done by creating the conditions to ensure that the future cost of fixing banks will no longer fall primarily on the public sector," she said.

Growth rates and output levels still remain well below where they should be, she said, adding that growth has not been balanced across Europe and, therefore, may not be sustainable.

"With unemployment rates as high as they are, this gap between actual and potential growth rates is likely to remain large for the foreseeable future," Lagarde said. A failure to revive investment and employment will not bode well for Europe's future, the official noted.

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