Denmark Says EU Bank Union Must Beat Taxpayer Protection

Denmark, which introduced bank bail-ins two years ago, would only join a European banking union if it offers better taxpayer protection than its current set-up, Economy Minister Margrethe Vestager said.

The union should give insurance against “taxpayers paying to clean up banks and build a stronger and more stable banking industry,” Vestager said today at a parliamentary committee meeting which addressed next week’s gathering of European Union finance chiefs in Brussels.

Central powers to handle failing banks are the second leg of the EU’s banking union strategy, which EU leaders laid out last year in an attempt to break the link between weak banks and sovereign debt struggles. The project took on new urgency in the aftermath of Cyprus bailout talks that culminated in forced losses for unsecured depositors at that nation’s two largest banks.

“We want to make the best possible decision, but we can’t make the call before the proposal is done,” Vestager said in an interview at the parliament in Copenhagen after the committee meeting. “Still, the banking union will be good for Denmark, regardless if we’re in or out, as another kind of banking cooperation is needed.”

Danish banks have struggled to persuade investors they’re as safe as their Swedish rivals after Denmark became the first EU country to force losses on senior bank creditors within a resolution framework. The 2011 failure of Amagerbanken A/S left most banks in Denmark locked out of funding markets as creditors shunned the nation’s bail-in legislation.

‘Already Familiar’

Vestager, who’s also Denmark’s deputy prime minister, said last month the EU should press ahead with plans for a joint mechanism to handle failing banks, rather than delay it as Germany would like. European finance chiefs meet May 14 in Brussels to discuss guidelines for national resolution plans. These guidelines will later set the frame for the bloc’s banking union, Vestager said.

“This is about putting in place the rules -- already familiar to us in Denmark -- across Europe to protect taxpayers from paying to salvage banks and hand the bill to shareholders and unsecured bond owners,” she said.

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