DAVOS, Switzerland Jan 24 (Reuters) - The European Parliament has room to "improve" an agreement among EU finance ministers on a banking resolution system, provided it does not breach national "red lines", France's finance minister said on Friday.
Pierre Moscovici told a news conference at the World Economic Forum in Davos that the hard-fought compromise clinched in two nights of negotiation last month could be improved notably with regard to the financial backstop for a fund to wind up failed banks.
The resolution mechanism for closing down insolvent banks is part of a broader drive for a European banking union under which the European Central Bank is to become the euro zone's single banking supervisor from later this year.
"If you are asking whether the text can be improved: there's no doubt. But the overall balance mustn't be put in question," Moscovici said.
At Germany's insistence, ministers agreed that a common bank resolution fund would be built up gradually over 10 years from levies on financial institutions.
In the meantime, governments would have to borrow from the euro zone's rescue fund on strict conditions, adding to their national debt, if they cannot afford to bail out a bank in their country after shareholders and bondholders have taken losses.
Berlin, which is the EU's main paymaster, is determined that its taxpayers should not be liable for legacy problems in other European countries' banks. Its constitutional court could rule any such debt mutualisation illegal.
France advocated a compromise, also supported by the European Central Bank, under which the common resolution fund would be able to borrow directly from the European Stability Mechanism bailout fund, but Germany blocked that idea, EU diplomats said.
"The question of backstops could be better dealt with... I would say in general that agreement has to be found with the Parliament. The text can be improved but the outline of the text has to be respected," Moscovici said.
European Parliament President Martin Schulz has said the deal reached by finance ministers is unacceptable in its current form, partly because it does not give EU lawmakers sufficient oversight.
Parliament has co-decision power over legislation as well as a related directive on bank deposit guarantees under the EU Treaty.
EU officials are rushing to reach agreement between lawmakers and member states before the current legislature ends in April to avoid long months of delay.
(Writing by Paul Taylor; Editing by Gareth Jones)