EU struggles to frame new financial rules

BRUSSELS: When it takes six hours to draft a single sentence in a 100-page document, you know things are moving slowly.

In meeting rooms of embassies across Brussels, diplomats are haggling over the finer details of dozens of reforms more than four years after the financial crisis that devastated European banks and triggered the euro zone's struggle with debt.

While the United States agreed in 2010 an initial framework to prevent financiers taking the kind of risks that sparked the deepest global recession since the 1930s, the European Union's response is often tangled in backroom diplomacy.

"Bailout is a naughty word these days but we haven't created a system to deal with failing banks without one," said a diplomat from a northern European country who is working on around 15 different EU dossiers to regulate finance. "We are still spending hours arguing over the wording of a sentence."

The crisis revealed how regulators and even top bank executives on both sides of the Atlantic failed to grasp the risks in the complex financial architecture they helped build.

But agreeing new laws among the bloc's 27 member countries and the European Parliament is becoming so burdensome that diplomats worry Europe's defences will not be in place should a new crisis hit.

German lender IKB was the first casualty of the financial crash in mid-2007, imploding after pursuing what one banker described as an "all you can eat" strategy, snapping up US subprime mortgage debt.

By the time the worst of the crisis was over in Europe, more than 50 lenders had to be rescued by their governments.

The EU responded with rules governing hedge funds and banker pay. But it has yet to outline a framework law for dealing with banks threatened with collapse, a reform many analysts believe is central in ensuring that bank bondholders and not the taxpayer pay to rescue banks in future.

The delicate state of Europe's banks, which have been faced with the possibility of a chaotic Greek debt default, is partly to blame.

Banks still have trillions of euros of risky loans on their books, and it has taken the near-unlimited offer of funds from the European Central Bank to prevent another credit freeze.