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EU draft bank rescue plan says countries must share burden: FT

The European flag (top L) fly amongst EU member countries' national flags in front of the European Parliament, in Strasbourg October 12, 201
The European flag (top L) fly amongst EU member countries' national flags in front of the European Parliament, in Strasbourg October 12, 201

LONDON (Reuters) - Struggling euro zone countries seeking future aid from the region's rescue fund to prevent their banks collapsing will have to share the cost burden, according to a draft euro zone proposal seen by the Financial Times.

Countries asking for help would have to either invest alongside the European Stability Mechanism (ESM) or guarantee it against any losses, according to the plan, which the newspaper said had been circulated in late 2012 among finance ministry officials.

In a major step last June, EU leaders agreed to allow the ESM to directly recapitalize banks and reduce the burden on countries such as Spain and Ireland, whose governments are carrying large amounts of debt after propping up banks when real estate bubbles burst.

But Germany, the Netherlands and Finland have since said there was never any question of past bad banking debts being shifted off the states' books and onto the ESM.

The FT said the two-page European Commission draft proposal would force countries that could afford it to put their own funds into failing banks before the ESM would pay out.

If a country faced insolvency following a bank bailout, it would still need to guarantee that the ESM would get its money back, it said.

The newspaper said officials had declined to comment, other than to say that they had until June to make a final decision and that the draft was likely to be changed in the interim.

Luxembourg Prime Minister Jean-Claude Juncker, outgoing chairman of the monthly meetings of euro zone finance ministers, said on Thursday that the euro zone must use its rescue fund to inject money into banks with past debts if its crisis response was not to be undermined.

(Reporting by Rosalba O'Brien; Editing by Kevin Liffey)

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