Euro zone ministers debate future of their bailout fund

By Francesco Guarascio and Robert-Jan Bartunek

LUXEMBOURG (Reuters) - Euro zone finance ministers were discussing on Monday the role of their bailout fund in the planned deepening of the economic integration of the 19 countries sharing the euro and whether the fund should backstop institutions in the EU's banking union.

The fund -- the European Stability Mechanism (ESM) -- was created at the height of the sovereign debt crisis as a lender of last resort to euro zone governments. It has a lending capacity of 500 billion euros.

"It is the right time to discuss what is the future role of the ESM, its involvement in dealing with programmes in member states, what is its role in the banking union," European Commission Vice President Valdis Dombrovskis said.

"We are trying to emphasise the role of the ESM as a potential backstop for the Single Resolution Fund while bringing it into the community framework," he said on entering monthly talks of euro zone finance ministers.

The Single Resolution Fund was created for the resolution of failing euro zone banks and is financed from annual bank contributions. It has so far accumulated 17 billion euros and is due to reach full capacity of around 55 billion euros in 2023.

Should it find before then that it needs more money than it has received from banks, it will need a backstop -- and ministers are likely to agree the ESM should play that role.

The ESM could potentially provide a similar underpinning for the yet-to-be-created European Deposit Insurance Scheme (EDIS), which will insure deposits in all euro zone countries up to 100,000 euros if opposition from Germany can be overcome.

The ministers are also set to discuss whether to bring the ESM into the community framework -- EU jargon for changing the status of the ESM, now an institution owned by euro zone governments, into a European Union institution, like the European Commission or the European Central Bank.

The ministers will also discuss ideas to turn the ESM into a European Monetary Fund, a move that would eliminate the need to involve the International Monetary Fund or the European Central Bank in future euro zone crises like the one that was triggered by Greece and engulfed also Ireland, Portugal, Spain and Cyprus.

The talks in Luxembourg are part of a broader discussion among finance ministers from the 19 euro zone countries on how to better organise the single currency area and integrate it more deeply after Britain leaves the European Union in 2019.

Apart from transforming the ESM, there are ideas to set up a euro zone budget, appoint a euro zone finance minister and create a euro zone subgroup in the European Parliament.

(Writing by Jan Strupczewski; Editing by Catherine Evans)