UPDATE 1-Eurogroup head says banking agency won't be delayed
* Says work on Europe's banking union on schedule
* Debate on resolution fund to accelerate after Sept. 22
By Andrius Sytas
VILNIUS, Sept 14 (Reuters) - Work will pick up after Germany's elections to set up a European agency that can order the restructuring or closure of any euro zone bank, the head of group's finance ministers Jeroen Dijsselbloem said on Saturday.
The agency, called the Single Resolution Mechanism (SRM), is to complement the European Central Bank as part of a banking union that will break the vicious circle between weak banks and indebted governments.
The ECB is to take up its new responsibilities in autumn of 2014 and EU policymakers are now planning to have the resolution body - which would also have a fund - ready on Jan. 1, 2015.
Until then, bank resolution would be governed by a set of common rules for all national authorities called the Bank Recovery and Resolution Directive.
But the timetable appears optimistic because Germany is adamant that to create a true resolution agency, the European Union needs to change its fundamental law, the EU treaty. This would be a lengthy and politically risky process.
Germany holds elections on September 22 and officials say Berlin is unlikely to be ready to seek a compromise before. Dijsselbloem appeared to share that view.
"There hasn't actually been a debate on how it can be solved. As of next month, I think we should have that debate and have it in depth and work on solutions," Dijsselbloem told reporters on entering talks of EU finance ministers.
"We're still on schedule. There was always the plan that the SRM proposal would come this summer. It did. And it was always the plan that we would finalise the discussions at the end of this year and we will," he said.
"In a week and a half the world might look different already," he said in a clear reference to the vote in Germany.
To avoid a change of the EU treaty, the European Commission proposed in July that it could become the resolution agency itself. But Germany and several other countries oppose that because it would mean the transfer of great new powers to the EU executive arm, which is already overseeing competition issues.
Elke Koenig, president of the German financial watchdog Bafin, criticised the Commission proposal in an article due to be published in German magazine WirtschaftsWoche on Monday.
"Brussels' plan, under which the ECB will in future make proposals for restructuring banks, the EU Commission will decide on whether to wind them down and the individual state must bear the consequences, is half-baked," she said.
"It encroaches on ownership rights, which could burden taxpayers. That lacks a solid legal basis," she said.
Legal work on the first pillar of the banking union, the ECB supervision of around 130 euro zone banking groups or about 80 percent of the banking sector in Europe, was completed last week, allowing the ECB to start technical preparations.