Eurozone Lawmakers Plan For Banking Health Checks

Eurozone policymakers are set to meet in Luxembourg on Monday to discuss the ramifications of next year's banking health checks.

The European Central Bank will conduct a series of tests on the region's banks in 2014 as a precursor to the eurozone banking union. The tests are likely to expose problems that have been building since the bloc's financial crisis started.

While the scale of European banks' losses is unknown, Reuters reported that the International Monetary Fund is expecting Spanish and Italian banks to lose 230 billion euros over the next two years on credit to companies alone.

Worries that the health checks will turn up worse than expected financials, European Central Bank President Mario Draghi is pushing for a public backstop which would help mitigate damages from banks with troubling balance sheets.

However, little progress can be made at Monday's meeting as Germany's Finance Minister Wolfgang Shaeuble will not attend. German lawmakers are occupied with talks to form a new coalition government after Angela Merkel's victory left her without an absolute majority in the lower house of parliament.

The eurozone's banking union is widely considered a necessary step for the region to fully emerge from years of financial struggle. Despite that, getting all members to agree on the terms of the integration has proven to be a difficult process. Germany has been hesitant about the prospect of relinquishing control of its banks since the beginning, but now Britain is starting to question the union as well.

Although British officials originally supported a eurozone banking union, the nation now wants assurance that the union will not interfere with Britain's own, self regulated banks.

Moving forward, investors will be closely watching the two day meeting this week as the region's finance ministers attempt to find a way to plug the holes in banks' balance sheets after next year's health checks. A failure to plan for the large gaps that are expected could shake investor confidence in the region and disrupt its fragile recovery.

BY Laura Brodbeck