EU-Digest: EU finance ministers say no to safety net for banks in EU paid by tax payers

Report on the EU finance ministers Friday meeting in Slovenia

EU finance ministers say no to safety net in EU for banks paid by tax payers

After a decade of talking about how to react if banks operating in several European countries veer toward collapse, EU finance ministers on Friday agreed on some ground rules that could see governments share the cost of an unlikely rescue. European Central Bank President Jean-Claude Trichet made it very clear that many national central bank governors had emphasized the danger of giving banks any kind of potential safety net paid for by taxpayers. "The idea of sharing the burden at the international level is even considered by some as something which is far away from the present possibilities," he said.

The text of the EU finance ministers agreement says regulators do not aim to prevent bank failures.

The agreement also specified "The objective of crisis management is to protect the stability of the financial system ... and to minimize potential harmful economic impacts." - "The management of an ailing institution will be held accountable, shareholders will not be bailed out and creditors and uninsured depositors should expect to face losses," it said. This agreement comes less than a year after Northern Rock bank in Britain stumbled toward insolvency and went to the Bank of England for help. That led to the nation's first bank run in more than a century. European finance ministers said government assistance would always be a last resort and there was no guarantee of help. Private sector solutions will always come first, according to the document, and a government rescue "will only be considered to remedy a serious disturbance in the economy. "European banks are increasingly making cross-border acquisitions, deals that have been strongly encouraged by EU officials who say it will boost competition and reduce costs. Italy's UniCredit leapt into Europe's top 10 lenders by buying Germany's HVB three years ago, while Spanish bank Santander, Franco-Belgian counterpart Fortis and Royal Bank of Scotland recently won a joint bid for the Netherlands' ABN Amro. This wave of consolidation raises the risk of a failure big enough to ripple across two or more European nations, speeding up ten years of regulators' discussions.

"What's ten years in Europe-land?" the EU's top financial services official, Charlie McCreevy, told The Associated Press. "Financial turmoil has sharpened the focus. It's now time to do something".