By Francesco Guarascio and Jan Strupczewski

By Francesco Guarascio and Jan Strupczewski

BRUSSELS (Reuters) - European Union states remain deeply split on how to move toward the completion of their banking union, EU officials said on Wednesday, on the eve of a two-day meeting of finance ministers aimed at making progress on the plan.

In 2012, a plan was drawn up in the wake of the euro zone sovereign debt crisis and the 2007-08 global financial crisis that forced euro zone countries to spend billions of euros to prop up their failing banks.

After agreeing on a common supervision plan for euro zone lenders and a joint privately funded scheme to wind down ailing banks, the 19 countries of the single-currency bloc have lost momentum and have been stuck for six months in talks on how to set up a European deposit insurance scheme (EDIS) to better protect savers, the third and last pillar of the plan.


"There is no agreement at this stage on how to go forward," an EU official told Reuters on Wednesday at the end of talks among EU envoys preparing for the finance ministers' regular meeting on June 16-17 in Luxembourg.

On Friday, ministers will try to agree at least on the next steps to take, but countries do not want to set deadlines and are divided on which measures should be carried out first, a second official said.

The draft conclusions of the meeting, seen by Reuters, do not include a date on when an agreement on the common insurance scheme should be reached.

Germany is leading the group of countries demanding more "risk reduction" before steps are made toward "risk-sharing".

In EU jargon, risk-sharing implies using common resources to increase financial stability. A single fund to insure depositors in euro zone countries would be a risk-sharing measure.

But Germany fears that this would disproportionately expose its banks to risks caused by weaker lenders in other European countries. Berlin is urging a reduction in banks' risks first, such as by introducing caps on lenders' exposure to the debt of their own sovereigns.

These requests are opposed by Italy and other euro zone countries, however, who worry that the move would cause market turbulence as banks would be forced to sell off assets at fire-sale prices and sovereigns' borrowing may become more costly.

The draft conclusions of the meeting, prepared by the Dutch presidency of the EU, deferred any decision on sovereign exposure to at least the beginning of 2018, when ministers are called to "take stock" of progress made on the issue by the Basel Committee, a body of banking supervisors from nearly 30 countries.

In a previous document the Dutch presidency, under pressure from Berlin, called for addressing the issue of sovereign exposure even before the Basel Committee reached its conclusions.

(Additional reporting by Tom Koerkemeier; Editing by Hugh Lawson)

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