- Agree 2011 start date for EU-wide fiscal consolidation
- Preliminary agreement on bumping up bank capital

By James Mackenzie and Marcin Grajewski

BRUSSELS, Nov 10 (Reuters) - EU finance ministers agreed on Tuesday to start major efforts to narrow budget gaps in 2011 at the latest and reached preliminary agreement to boost the amount of capital banks must hold to offset risky activities.

But the ministers decided at a meeting in Brussels that it was too early to consider setting deadlines for ending bank support in the 27-country European Union.

The agreement on deficit reduction followed a similar accord on Monday among the 16 countries that use the euro in which the ministers decided not to set a date to start phasing out support for banks to help them through the economic crisis.

It's premature now to start to talk about ending these guarantee schemes, capital injection schemes and bad asset schemes, Swedish Finance Minister Anders Borg told a news conference.

It is necessary that we start to discuss the principles, the sequencings and the coordination that is necessary to withdraw the support system in an orderly way.

The European Commission, the EU's executive arm, had asked ministers to consider options including rolling back state guarantees of bank liabilities and other aid measures from mid-2010, or at least charging higher fees for such cover.

European Economic and Monetary Affairs Commissioner Joaquin Almunia said some countries were willing to discuss the idea but others were above all more worried that the financial system remained too fragile.

There's a need for further discussion, Almunia said.

Tuesday's talks primarily concerned blanket guarantees that governments across Europe offered banks at the height of the financial crisis to stabilise the situation.


The ministers reached a preliminary agreement to sharply boost the amount of capital banks must hold to offset risky trading activities, but the amount was not specified.

 They also asked EU president Sweden to start talks with parliament with a view to final adoption of the reform at first reading. The agreement requires approval of EU states and the European Parliament.

The Council (of EU finance ministers) agreed on a general approach... on a draft directive aimed at strengthening disclosure and capital requirements for the trading book and resecuritisation instruments in the banking sector, an EU statement said.

The reform will also prevent bank pay policies that generate unacceptable levels of risk, the statement said.

The measure was proposed by the EU's executive European Commission in July to strengthen the bloc's bank capital requirements rules (CRD) by applying lessons from the worst financial crisis since World War Two.

It is also part of wider, global efforts to force banks to top up their capital and liquidity levels and reduce the need for taxpayer-backed bailouts of banks in any future crisis.


The Commission and EU governments are trying to send a message to financial markets that they are planning for when they can take the economy back off emergency support.

The euro zone economy is widely believed to have started growing in the third quarter, after five quarters of contraction, thanks to ultra-low interest rates, heavy government spending and other extraordinary policy measures.

Euro zone ministers agreed in a meeting on Monday that budget consolidation should start in 2011 and in some cases even sooner. The Commission is due to publish recommendations on the pace of consolidation on Wednesday.

The Brussels meetings followed a weekend gathering in Scotland where ministers of the G20, comprising the world's largest developed and developing economies, said it was too early to deprive the economy of the ultra-low interest rates and trillions of taxpayer dollars thrown at fighting the downturn.

(Additional reporting by Jan Strupczewski, Brian Love, Huw Jones and John O'Donnell; Writing by Brian Love and Timothy Heritage; Editing by Ruth Pitchford)