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Germany may get exemptions from saver protection scheme: EU official

A man walks past a branch of Commerzbank ahead of the bank's annual news conference in Frankfurt, Germany in this on Feb 12, 2015 file picture.

[FRANKFURT] Germany may be allowed to exempt the vast majority of its banks from a European plan to shield vulnerable European savers, according to an EU official, in the latest bid to establish the long-contested scheme.

A pan-European system of deposit protection to guarantee savers' security, regardless of the strength of their national economy, is a central pillar of a project known as banking union to give the euro currency a more solid foundation.

As it stands, national funds or governments must help savers who lose money when a bank goes bust.

Replacing this patchwork with a pan-national system, however, has become bogged down by opposition from Germany, which does not want to be on the hook for failed banks in countries such as Greece.

Now the European Commission's president Jean-Claude Juncker has made a fresh attempt to break the deadlock, according to an EU official, proposing a sweeping exemption for most German banks. The Commission will outline the full plans on Tuesday.

A European Union official said Germany's savings and cooperative banks could be granted exemptions on the grounds that they already have their own deposit protection schemes. "If you have a solution at the national level, then you don't need the European Union reinsurance," said the official."You don't have to pay in. You have your own system." Such a concession, which would effectively remove the majority of banks in the eurozone's top economy from such a scheme, would hollow out the plan for pan-European deposit protection.

The offer is open to all banks in European countries but aimed chiefly at Germany where, unlike in other countries, savings and cooperative banks dominate. Deutsche Bank and Commerzbank are its only well-known commercial banks but enjoy only a modest market share at home.

If savings banks were exempted, it may satisfy Berlin, but would, by removing tens of billions of German deposits from the pool, undermine any pan-European plan. Southern European countries stand to gain less from the offer and may object.

The European fund would be aimed at helping failed banks. Germany's savings banks, however, already have an agreement to club together if a peer runs into trouble.

The European Commission's proposal envisages a gradual merging of national schemes. It aims to start in 2017 with a system of reinsurance, where an EU fund would step in if national schemes buckle.

After 2020, the European fund would play an increasingly important role and act immediately if a bank failed. Over time, national schemes would gradually fade into the background, leaving the European fund as the chief backstop in 2024.