By John O'Donnell, Robin Emmott and Ingrid Melander
LUXEMBOURG (Reuters) - Europe failed to agree on how to share the cost of bank collapses on Saturday, as Germany resisted attempts by France to water down rules designed to spare taxpayers in future crises.
Almost 20 hours of talks late into the night could not forge a way for countries to set up an EU-wide regime that would first impose losses on shareholders and bondholders when a bank fails, followed by depositors with more than 100,000 euros ($132,000).
Ministers will make a fresh attempt to break the impasse at a meeting on Wednesday, on the eve of an EU leaders summit, and resolve one of the most difficult questions posed by Europe's banking crisis - how to shut failed banks without sowing panic or burdening taxpayers.
"I think we can reach a deal if we take a few more days," said Michel Barnier, the European commissioner in charge of regulation. "We are not far off now from a political agreement."
The European Union spent the equivalent of a third of its economic output on saving its banks between 2008 and 2011, using taxpayer cash but struggling to contain the crisis and - in the case of Ireland - almost bankrupting the country.
German Finance Minister Wolfgang Schaeuble blamed the complexity of the issue and conflicting interests for not being able to reach a final result on Saturday. One EU official, who asked not to be named, described the meeting as chaotic.
At the heart of the disagreement, chiefly between Germany and France, was how much leeway countries should have when imposing losses on bondholders or large savers, a procedure known as "bail-in."
Such an approach was first tested out in Cyprus' bailout in March, but making it the EU norm would mark a radical departure from the bloc's crisis management in which taxpayers have footed the bill for a string of rescue programs.
Britain, Sweden and France worry that forcing losses on depositors could cause a bank run or rattle confidence, and want countries to have wide-ranging freedom in deciding whether to take such bold steps.
Spain's Economy Minister Luis de Guindos underscored the sensitivity of the issue. "What's fundamental is there is agreement over the bail-in hierarchy and the protection of small depositors," he said.
Germany, however, wants strict norms. Schaeuble said the new rules should not vary across the 27-nation European Union because that could put some banks at a competitive disadvantage.
"There's clear disagreement between France and Germany. That's why the meeting broke up," said one EU diplomat.
France's Finance Minister Pierre Moscovici tried to play down any divisions and said a deal was possible next week.
While there is no immediate deadline for an agreement, indecision could hurt confidence in the ability of Europe's politicians to repair the financial system, encourage banks to lend and help the continent emerge from economic stagnation.
An agreement on European rules for closing banks is also a step required by Germany before it will sign off on a scheme for the 17-nation euro zone's bailout fund to help banks in trouble, potentially important in helping Ireland.
"The fact that the euro zone countries are trying to push a solution is very dangerous for the rest of us," Sweden's Finance Minister Anders Borg told reporters.
The regime to ensure that troubled banks are closed in an orderly way sets an important precedent for the euro zone, which is pursuing a project called banking union to supervise, control and support banks to rebuild confidence in the currency.
This scheme aims to form a common front across the single currency area when tackling failed banks, rather than leaving it to countries to manage alone.
At the wider EU level, the so-called resolution rules are needed so that the euro zone can mould its own regime and decide how the bloc's rescue fund helps banks.
Its rules, for example, on pushing losses on large savers, could be made stricter, in particular for banks seeking help from the fund, the European Stability Mechanism.
Euro zone finance ministers agreed late on Thursday to set aside 60 billion euros for banks via the fund.
If agreed, the rules would take effect at the start of 2015 with the provisions to impose losses coming as late as 2018.
(Additional reporting by Jan Strupczewski, Martin Santa, Ingrid Melander and Ilona Wissenbach; Writing by John O'Donnell and Robin Emmott; Editing by Lisa Shumaker)