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The eurozone's permanent bailout scheme, the European Stability Mechanism, could be used to backstop a fund to protect bank deposits or wind up failing lenders, according to a document prepared for European leaders meeting this week.
"The credibility of any deposit guarantee scheme requires access to a solid financial backstop," said the report, outlining one of a series of proposals to move towards deeper economic and monetary union and shore up the euro.
"As regards the euro area, the European Stability Mechanism could act as the fiscal backstop to the resolution and deposit guarantee authority," said the report. Taking such a step would first require the blessing of Germany, which has so far been reluctant to back such a move. The 7-page report was drafted by European Council President Herman Van Rompuy, European Commission President Jose Manuel Barroso, European Central Bank President Mario Draghi and the head of the Eurogroup countries, Jean-Claude Juncker. It will be discussed by EU leaders at a summit on Thursday and Friday. Setting up a single euro zone scheme to cover the costs of winding down troubled banks and to shield the deposits of savers is an important element a banking union, designed to rebuild confidence in the bloc's lenders.

Copyright Reuters, 2012

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