Eurozone ministers agree banking deal ahead of summit
EU leaders to approve eurozone banking reform deal
(about 7 hours later)
EU leaders are heading to a summit in Brussels, hours after a long-awaited pact was agreed on how to respond to failing eurozone banks.
EU leaders are meeting in Brussels to approve a common set of rules for managing the closure of failing eurozone banks in an orderly way.
Under the plan a 55bn-euro ($75bn; £46bn) fund would be set up, financed by the banking industry, over 10 years.
Under a plan agreed by finance ministers a 55bn-euro ($75bn; £46bn) fund will be set up, financed by the banking industry, over 10 years.
A new European resolution authority would be created, which would decide when and how banks would be closed.
The deal is aimed at building an EU banking union that should minimise the need for taxpayer-funded bailouts.
The deal is part of wider efforts towards building a banking union to avoid taxpayer-funded bank bailouts.
It could be the biggest centralisation of EU power since the euro's launch.
On paper, the agreement represents the biggest centralisation of power in the European Union since the launch of the euro, BBC Europe correspondent Chris Morris reports.
A new European resolution authority will be created, to decide when and how insolvent banks are to be closed.
The UK and 10 other non-eurozone economies are not part of the deal.
The UK and 10 other non-eurozone economies are not part of the deal.
Under the complex agreement, a resolution fund paid for by the banks themselves would gradually merge national pots into a common European fund over the course of the next decade as a new European agency, the resolution authority, is set up.
A resolution fund paid for by the banks themselves would gradually merge national pots into a common European fund.
The idea, says the BBC's business editor Robert Peston, is to minimise the collateral damage from bank failures.
The idea, says the BBC's business editor Robert Peston, is to minimise the collateral damage from bank failures.
But he says the fact that eurozone finance ministers have retained the powers to decide the fate of failing banks does not augur well for speedy action.
But he says the fact that eurozone finance ministers have retained the powers to decide the fate of failing banks does not augur well for speedy action.
And the 10-year lead time will not reassure the creditors of Spain and Italy, for example, that they will not end up liable.
And the 10-year lead time will not reassure the creditors of Spain and Italy, for example, that they will not end up liable.
Perhaps most of all, 55bn euros is but "a pimple in the context of the monumentally huge balance sheets of eurozone banks" - less than it cost to bail out just the Royal Bank of Scotland - our editor says.
Moreover 55bn euros is tiny compared with the balance sheets of eurozone banks, our editor says.
The agreement, hammered out after months of negotiation, will be considered for approval by EU leaders when they meet later on Thursday. They have been keen to finalise a deal before new bank "stress tests" begin next year.
EU leaders are keen to finalise a deal before new bank "stress tests" begin next year.
Defence co-operation is also on the agenda, with budget constraints pushing EU governments to seek more joint solutions to security challenges.
The European Central Bank (ECB) has been put in charge of eurozone bank supervision. The stress tests are expected to reveal that some banks are overexposed, and will require new injections of capital.
Three pillars
Tighter defence co-operation is also on the agenda. The European Commission sees scope for savings, highlighting that there is too much duplication in Europe's armed forces. Defence industries employ about 750,000 people in the EU.
German Finance Minister Wolfgang Schaeuble said that by agreeing the deal "we have created the banking union's final legal pillar".
New banking union
The first pillar of banking union will take shape next year when the European Central Bank sets up a supervisory body to monitor all 6,000 banks in the eurozone. Germany and some other countries want to retain their own high degree of supervision over smaller banks, which are reckoned to pose less systemic risk.
At the summit, UK Prime Minister David Cameron is expected to raise the issue of migrant workers again.
The ECB's stress tests of banks are expected to reveal that some are overexposed, and will require new injections of capital.
The second part is the Single Resolution Mechanism. This means that if a bank anywhere in the eurozone gets into trouble, the process of bailing it out - or even letting it go bust - would be managed by a common "resolution authority".
The final pillar is a common deposit guarantee. There is already general agreement on an EU-wide deposit guarantee of 100,000 euros (£84,000; $138,000) per saver. But the aim is to have a common rulebook covering bank accounts across the EU and eventually a joint fund to compensate for losses when a bank gets into trouble.
Single market tensions
At the summit, UK Prime Minister David Cameron is expected to raise the issue of migrant workers again, as the UK seeks to tighten up its social benefit rules for migrants.
France has seen heated debate about the rules for posted workers - that is, temporary workers brought in from another EU state.
France has seen heated debate about the rules for posted workers - that is, temporary workers brought in from another EU state.
The lifting of labour market restrictions for Bulgaria and Romania next month has made the issue more acute, because of fears in some areas about "social dumping" - that is, cheap foreign workers replacing locals.
The lifting of labour market restrictions for Bulgaria and Romania next month has made the issue more acute, because of fears in some areas about "social dumping" - that is, cheap foreign workers replacing locals.
Under current rules a foreign employer can pay social security contributions in its home state. That can give a competitive advantage in countries like France, where social security costs are high. There are also concerns about the working conditions of imported temporary workers.
The summit chairman, European Council President Herman Van Rompuy, has told EU leaders that reform of the posted workers directive needs to proceed rapidly. There is a push to get the negotiations finished before the May European elections.
On defence co-operation, the Commission sees scope for savings, highlighting that there is too much duplication in Europe's armed forces. Defence industries employ about 750,000 people in the EU and annual turnover is about 170bn euros.
