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EU lawmakers call for stronger safety net for failing banks

The European Union flag is pictured in a window reflecting a street in London, October 26, 2011. REUTERS/Luke MacGregor
The European Union flag is pictured in a window reflecting a street in London, October 26, 2011. REUTERS/Luke MacGregor

BRUSSELS (Reuters) - EU lawmakers called on Thursday for a strengthening of plans to tackle failed banks in the euro zone, as tensions mounted in talks to seal the important reform.

The call from the European Parliament comes as efforts to form a united front behind euro zone banks, known as banking union, reach a climax.

The Thursday vote is intended to underscore lawmakers' concern that the blueprint, watered down by Germany and others to prevent any sharing of bank problems, will fail to restore confidence and prove flimsy should another crisis strike.

The European Parliament wants euro zone countries to promptly establish a shared fund to cover the costs of bank failure. It also wants faster decision making when it comes to closing or saving a bank, without meddling by politicians.

If the dispute worsens and the parliament refuses to approve the system to close or salvage failed lenders, it could delay 'banking union', denting faith in the euro currency and its banks.

Sharon Bowles, who heads the parliament's influential economic and monetary affairs committee, said the vote would "send a strong message" to countries that they needed to show willingness to compromise.

More than two thirds of lawmakers who voted gave their support.

"This is saber rattling. It's a signal that the countries must change the deal considerably," said Sven Giegold, a German lawmaker. "If they don't do it, then things won't work out."

Late last year, countries from across the European Union agreed a scheme to close failing banks, but the process will be complex and politicized. They also stopped short of an ambitious plan for euro zone countries to help each other financially in tackling problem lenders.

This agency and fund to wind down bad banks, working in tandem with the European Central Bank as the new watchdog, is an important step towards banking union, but lawmakers fear that loose ends could lead to the complete unraveling of the project.

Some officials fear missing elements in the scheme could restrain the European Central Bank from revealing the true extent of banks' problems in health checks if this would overburden weak countries with a costly bill for their repair.

Separately, lawmakers are also skeptical of a German drive to enshrine part of the framework in a deal among a circle of governments rather than for the entire European Union.

(Reporting By John O'Donnell)

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