Source: The Associated Press

European Union finance ministers are set to discuss the possibility of introducing a levy on banks and whether a tax on financial transactions can deal with another banking crisis, as they gather Tuesday in an atmosphere more benign than when they last met in July.

Worries about the European economy and its ability to deal with large amounts of government debt have been eased by a run of better than expected economic data, progress by Greece in strengthening its bailed-out government finances and the results of stress tests on 91 of the EU’s banks.

The most apocalyptic scenarios openly discussed a few months ago, such as the collapse of the euro currency, have been put on the back burner. But policymakers remain wary that the government debt crisis could flare up again, particularly as the 16 governments that use the euro are set to issue more debt this month than they did in August in a continuing test of how bond markets view government finances.

Any signs of EU disunity or discord could trigger another bout of investor unease. That could lead to market borrowing costs spiking again, which would government financial troubles even worse.

Top of the agenda will be the first discussions among finance ministers from all 27 EU member countries on the possible introduction of a bank levy and a separate tax on financial transactions, as governments try to find a way to protect against another banking crisis. The euro group ministers convene afterwards.

“We all agree on the need to have credible sanctions,” said Olli Rehn, European Commissioner for Economic and Monetary Affairs.

The leaders of the EU agreed at their June summit that bank levies should be introduced but technical issues, such as how the tax will be imposed and what the proceeds will be used for, need to be ironed out.

The leaders did not issue any guidelines on the transactions tax, which is often called the Tobin tax after the Nobel Prize laureate James Tobin who first made the proposal in the 1970s.

Proponents of the measures argue that they will curb excessive risk-taking and place the financial burden of any rescue package on financial institutions themselves instead of the taxpayer. During the financial crisis, governments across the EU provided financial institutions public support worth an astonishing 16.5% of the union’s total worth.

The ministers are also set to approve a financial oversight structure that should anticipate financial crises and contain the excessive risks that have been blamed for the global financial crisis of the past two years.

The EU member nations and the European parliament have already agreed to the outlines of such a system but it needs the formal backing of the member states on Tuesday before it goes to the European legislature for further approval.

The finance ministers are also slated to approve a second installment of emergency loans – worth C9 billion – for Greece after the European Commission and the International Monetary Fund praised the country for the efforts it has made since the massive C110 billion bailout plan was agreed in May.

Germany, the eurozone’s economic powerhouse, is expected to be at the forefront of calls to enforce stricter sanctions on profligate members of the single currency zone to make sure that another Greek-style debt crisis doesn’t explode in the future.

Though suggestions to curb voting rights and access to EU funds are unlikely to get approval anytime soon, Germany’s finance minister Wolfgang Schaeuble said Monday he will continue bringing the issue up with his peers. The current regime, which is supposed to limit a country’s budget deficit to 3% of GDP and overall debt to 60%, has failed.

“For way too long we hid behind platitudes,” said Jean-Claude Juncker, head of the eurozone finance ministers’ group, which meets Tuesday afternoon after the Ecofin meeting. “If we do not agree on sharper measures we will add pressure in the eurogroup.”