European Union finance ministers on Thursday agreed a deal on new rules for bank rescues, diplomats said on the sidelines of the talks in Brussels.

The agreement on a key stumbling block towards greater integration in the eurozone came just hours ahead of the start of a summit of EU leaders that will aim to tackle youth unemployment.

The crux of the matter is who foots the bill when a bank fails, and what room for manoeuvre governments can have to decide a strategy for dealing with the situation after widely differing experiences in Europe in recent years.

The issue is a touchy one because it will decide what costs bank shareholders, creditors and account holders will bear in "bail-ins" -- when lenders are forced to assume losses instead of using taxpayer funds.

A draft proposal last week foresaw shareholders taking initial losses, followed by creditors, bond holders and finally depositors with more than 100,000 euros in their accounts.

There have been two main camps in the talks.

The first group includes Britain and France, which want to afford EU nations greater flexibility to decide how to deal with banking crises on a case-by-case basis.

Other countries, like Finland, Germany and the Netherlands, want the strictest and widest-ranging possible rules to avoid uncertainty which could scare off investors.

They also want to avoid any use of public funds in future crises -- a method that stoked public anger against many governments during the crisis.

Source: AFP