European finance ministers gathered in Brussels on Friday (November 15) to pledge to stand by banks that are exposed as being dangerously weak by health checks next year, but questions remain over how to support those banks in countries unable to prop them up alone.
Disagreement over the issue could be a potential hurdle to completing the banking union, for which the creation of a single resolution fund in any form is key.
Germany is reluctant to join a plan where it will end up paying for bank failures outside its borders, and is opposed to using the bloc's bailout fund (ESM) as a backstop, while France wants a safety net in place before the stress tests are hold.
European Central Bank Executive Board member Joerg Asmussen, who joined the ministers' meeting, said it was vital for eurozone governments to have a way to financially support their banks in case they need more capital as a result of next year's health checks by the European Central Bank.
"Today, from the ECB side we always said it is absolutely necessary that we have credible backstops in place before the whole exercise starts, so we need three layers of backstops, these are first private markets, second domestic budgets or domestic bank rescue funds and the third layer is the ESM as it stands," he said.
The bank health checks next year by the European Central Bank and then by regulators across the wider European Union, could upset the eurozone's fragile economic recovery as they are likely to reveal losses on loans and capital holes at banks.
By explaining how the clean-up will be paid for, ministers had hoped to reassure investors that they are finally ready to come clean on the bank problems that have dogged them for more than half a decade.
But their promise to stand ready with national backstops will be a hollow one if it is unclear how countries that are too weak to prop up their banks alone can be helped.
Presented by Adam Justice