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Vestager Says Bridge Financing Key to Banking Union Call

Danish Economy Margrethe Vestager said access to short-term public-sector financing for failing banks will drive Denmark’s decision on whether to join the euro area’s banking union.

Bridge financing is an open question in the debate over a proposed new agency to handle bank failures, along with a bank-financed common fund. In an interview yesterday in Copenhagen, Vestager said her nation has been “negotiating very actively” to lay the groundwork so Denmark won’t be disadvantaged if it decides to take part.

Under the current plan, euro-area nations that needed cash to manage through a banking crisis could apply to the currency zone’s European Stability Mechanism firewall fund, as Spain did in 2012. Vestager said other countries wouldn’t have that backstop, making it riskier for them to sign on.

“From a Danish point of view, what is important is that there is access to bridge financing,” Vestager said. “Because otherwise a non-euro country would be in kind of an inferior position to the euro countries who have this -- yes, very limited -- but do have access throught the ESM for bridge financing.”

EU finance ministers agreed in December on an outline for a Single Resolution Mechanism, a new agency to handle struggling lenders, that sets out a ladder of decision-making authority and lays the groundwork for a resolution fund. All euro members will be part of the system, since their banking supervision is moving this year to the European Central Bank.

Denmark, a non-euro country, is watching that transition closely, Vestager said.

“You can have a wonderful legal framework but if the situation on the ground is muddy or contradicting to the framework, well, then you have another situation,” Vestager said. “We’re looking carefully at how will the asset quality review take place and what results will come out of it.”

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