Eurozone ministers agree banking deal ahead of summit
Spain's Economy Minister Luis de Guindos with ECB President Mario Draghi in Brussels
EU leaders are heading to a summit in Brussels, hours after a long-awaited pact was agreed on how to respond to failing eurozone banks.
Under the plan a 55bn euro ($75bn; £46bn) fund would be set up, financed by the banking industry, over 10 years.
A new European resolution authority would be created, which would decide when and how banks would be closed.
The deal is part of wider efforts towards building a banking union to avoid taxpayer-funded bank bailouts.
On paper, the agreement represents the biggest centralisation of power in the European Union since the launch of the euro, BBC Europe correspondent Chris Morris reports.
The UK and other 10 non-eurozone economies are not part of the deal.
Under the complex deal, a resolution fund paid for by the banks themselves would gradually merge national pots into a common European fund over the course of the next decade as a new European agency, the resolution authority, is set up.
The agreement, hammered out after months of negotiation, will be considered for approval by EU when they meet later on Thursday. They have been keen to finalise a deal before new bank "stress tests" begin next year.
Defence co-operation is also on the agenda, with budget constraints pushing EU governments to seek more joint solutions to security challenges.
Germany's Chancellor Merkel (centre) wants more centralised powers in the eurozone
German Finance Minister Wolfgang Schaeuble said that by agreeing the deal "we have created the banking union's final legal pillar".
The first pillar of banking union will take shape next year when the European Central Bank sets up a supervisory body to monitor all 6,000 banks in the eurozone. Germany and some other countries want to retain their own high degree of supervision over smaller banks, which are reckoned to pose less systemic risk.
The ECB's stress tests of banks are expected to reveal that some are overexposed, and will require new injections of capital.
The second part is the Single Resolution Mechanism. This means that if a bank anywhere in the eurozone gets into trouble, the process of bailing it out - or even letting it go bust - would be managed by a common "resolution authority".
The final pillar is a common deposit guarantee. There is already general agreement on an EU-wide deposit guarantee of 100,000 euros (£84,000; $138,000) per saver. But the aim is to have a common rulebook covering bank accounts across the EU and eventually a joint fund to compensate for losses when a bank gets into trouble.
Solidarity is conditional
The banking union talks are linked to the wider issue of European monetary union. The EU is still trying to rebuild global confidence in the euro after the 2008 financial crisis, which left many of Europe's banks in severe difficulties.
European governments have spent 1.5tn euros (£1.3tn; $2tn) propping up banks whose lending turned bad, causing crises in Spain, Cyprus and Ireland.
The richer eurozone countries with top credit ratings say help for weaker eurozone partners, through common funding mechanisms, is conditional - they have to deliver far-reaching economic reforms, to minimise the risk of uncontrollable debt in future.
Germany is among those arguing that such reforms should be written into contract, going beyond the existing budget rules set by the European Commission.
At a pre-summit briefing an EU official said France and some other countries took a different view - they were asking for guaranteed financial support in return for committing to certain tough economic reforms.
The discussions are overshadowed by high unemployment levels in much of Europe, coupled with anaemic growth and poor competitiveness.
Single market tensions
France has seen heated debate about the rules for posted workers - that is, temporary workers brought in from another EU state.
The lifting of labour market restrictions for Bulgaria and Romania next month has made the issue more acute, because of fears in some areas about "social dumping" - that is, cheap foreign workers replacing locals.
Under current rules a foreign employer can pay social security contributions in its home state. That can give a competitive advantage in countries like France, where social security costs are high. There are also concerns about the working conditions of imported temporary workers.
The summit chairman, European Council President Herman Van Rompuy, has told EU leaders that reform of the posted workers directive needs to proceed rapidly. There is a push to get the negotiations finished before the May European elections.
UK Prime Minister David Cameron is expected to raise the issue of migrant workers again, as the UK seeks to tighten up its social benefit rules for migrants.
On defence co-operation, the Commission sees scope for savings, highlighting that there is too much duplication in Europe's armed forces. Defence industries employ about 750,000 people in the EU and annual turnover is about 170bn euros.
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