* Merkel says stronger centralised banking body required
* Chancellor says EU banking authorities failed on Spain
* Bundesbank member: bank union needs central fiscal powers
By Annika Breidthardt and Sarah Marsh
BERLIN, June 12 Germany's Angela Merkel and its
central bank pushed back on Tuesday against calls from other
parts of the euro zone for the rapid establishment of a banking
union, saying it could only come as part of a drive towards
The European Central Bank and European Commission are keen
to move swiftly to cross-border supervision of the bloc's
biggest banks, and a deposit guarantee scheme, and see Spain's
bank bailout as a first step in that direction.
But Chancellor Merkel and a Bundesbank member said more
sovereignty must first be given to central authorities to impose
economic discipline on member states and measure their banks'
performance more effectively than the European Banking Authority
Merkel praised Spain's decision to request up to 100 billion
euros ($125 billion) of European Union aid for its debt-stricken
banks and laid the blame on the Spanish property bubble that has
saddled the sector with bad debts.
She told a meeting of business supporters that the European
Banking Authority's remit had been undermined by national
oversight bodies acting "out of misguided national pride", which
had led to inaccurate stress tests, she said.
"No sooner had we finished the recapitalisation phase of
banks from the EBA stress tests when it emerged that the Spanish
stress tests were not correct," she said in a speech.
"If we need European institutions that provide better
oversight of banks, we have to be prepared to give up more
national supervision," she said.
"I want a Europe where it is always clear that common
liabilities and common controls are in the same hand. It cannot
be that we communitarise liabilities but leave control in the
national jurisdiction," said the chancellor.
A German central banker said a banking union must be
anchored in a fiscal union, with powers to stop member states
breaking budget rules, because a banking crisis in one country
"may require the use of taxpayer money from other countries".
The Bundesbank's Sabine Lautenschlaeger said in a speech to
a banking supervision conference that "whoever is footing the
bill must also have a right of control, particularly when it
comes to the large sums that are seen in banking crises".
The German stance puts a banking union on the same
time-consuming track as the treaty change needed to create an
economic union, a process likely to take years.
The leaders of the European Central Bank and the EU
Commission have urged much swifter agreement to help the bloc's
banks, which have been lending heavily via the bond markets to
over-stretched governments and are also nursing bad debts from
the region's slide into recession.
French Finance Minister Pierre Moscovici said on Tuesday
that the planned aid package of up to 100 billion euros for
Spain's banks was the first step towards a euro banking union.
Jose Manuel Barroso, president of the European Union's
executive European Commission, pushed the plan for all the
bloc's 27 countries to submit their big banks to a single
cross-border supervisor as early as next year.
Britain, which hosts Europe's biggest banking centre, should
be able to opt out as long as it did not block the plan, he told
the Financial Times.
The European Central Bank's Christian Noyer said the ECB
should get new, wide-ranging supervision powers over large banks
in a banking union, saying the ECB and national central banks
were "well equipped to be the backbone of the financial union".
Germany has expressed concerns that plans for an EU-wide
bank deposit guarantee scheme and a rescue fund paid for by
levies on financial institutions could mean it risks footing the
bill if there are no proper safeguards.
In the same vein, it continues to reject calls for common
euro zone bonds, with Merkel calling the debate an unwelcome
distraction and adding that her country could not condone
proposals that would only exacerbate the sovereign debt crisis.
"Germany - and I can say this for the whole country - is
prepared to do more on integration but we cannot get involved in
things which I am convinced will lead to an even bigger disaster
than the situation we are in today," said Merkel.
Finnish Prime Minister Jyrki Katainen, one of Merkel's key
allies in the euro zone, said he saw some benefit in economies
with top credit ratings issuing a form of mutualised debt - if
they had "at least one A in their credit rating".
Such instruments "could be very liquid and it might push
average yields down - even to benefit countries like Germany and
Finland," he told the event in Berlin attended by Merkel.
But Katainen questioned whether it was advisable to shield
countries from "market pressures" to keep their public finances
in good order, echoing arguments made by Merkel against such
bonds. Finland and Germany are among only a small handful of
remaining euro zone countries with a triple A credit rating.