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* Watchdog will keep euro zone banks in check
* ECB earmarks 156 million euros in 2015 for 1,000 staff
* Salaries can reach 245,000 euros, ECB says good terms necessary
By John O'Donnell
FRANKFURT, May 27 (Reuters) - The European Central Bank will spend 300 million euros ($410 million) this year and next in building an elite group to monitor top banks, with the lion's share spent on generous pay for many of its staff.
While the new watchdog is funded by a levy on the banks rather than by taxpayers, the wage bill could reignite a debate about salaries for European Union officials after protest parties triumphed in elections to the European Parliament in France, Britain and elsewhere.
For the hiring spree, which has prompted a flood of 8,000 applications, the ECB has a 156 million euro budget in 2015 for 1,000 staff earning low-tax salaries of up to 245,000 euros a year for the top supervisors.
The new authority in Frankfurt will lead supervision of banks throughout the 18 countries of the euro zone, overseeing a clean-up of the sector this year and ensuring that the lenders blamed for triggering the financial crisis are kept in check.
Revealing the budget for the "Single Supervisory Mechanism" (SSM), the ECB defended what it called "comparatively good conditions" as necessary to recruit qualified staff.
"You need to have some good people," said Steven Keuning, the ECB's budget chief, told reporters on Tuesday. "This is not amounting to a very lavish bureaucracy."
A further 78 million euros or so will be spent next year on travel, consultancy and information technology, while 26 million euros is set aside for premises.
The 'gross salaries and other personnel costs' at the agency work out at roughly 156,000 euros per person. ECB President Mario Draghi earned 378,000 euros last year while the watchdog's chief, Daniele Nouy, does not disclose her salary.
The issue of pay for top European civil servants is contested while the economy remains sluggish and unemployment in some countries such as Spain and Greece is at a record high.
"People are being alienated for several reasons," said Costas Chrysogonos of Greece's leftist Syriza party, who will join the growing number of critical voices in the European Parliament following the elections which ended on Sunday.
"There is huge inequality. There are people in Bulgaria who are paid 150 euros a month for their work. And there are people in Brussels who are being paid some tens of thousands of euros."
With the agency's budget set to increase further over time, its establishment has attracted wide interest from bankers, many of whom have lost their jobs as the industry slims down.
Barclays, for one, is cutting up to 19,000 staff as the British group pares back investment banking and embarks on a revamp. Other banks are also scaling back after the credit bubble that led to the economic crash burst.
The new ECB watchdog, which will take the pulse of the euro zone's biggest banks in health checks this year, will be tasked with restoring shattered confidence in the sector.
For some bankers involved with risk management, for example, the hiring in Frankfurt offers hope in an often barren jobs market. Supervisors working for national agencies that are handing over part of their powers to the ECB are also throwing their hat in the ring.
The top jobs are particularly hotly contested. In one instance, 1700 hopefuls applied for 90 high-ranking positions.
The salary scale at the watchdog is the same as at the European Commission and other EU institutions, which have been criticised for paying staff too generously while enforcing budget austerity for member states.
EU civil servants pay special tax rates of between 8 and 45 percent which are also typically lower than national levels.
Many of those who responded to the watchdog's job advertisements in the Economist magazine, the Financial Times or on its own website have been women. Nouy has pledged to give preference to female applicants.
So far, roughly a third of the jobs have been filled and the arrival of these officials in Frankfurt is already fuelling increases in rents for upmarket property.
More than 700 of the new jobs will be supervisors with the remainder support staff.
Sven Giegold, a German Green member of the European Parliament who helped to create the new scheme of supervision, defended the costs. "I would rather have a supervisor with good people than a banking crisis that costs many hundreds of billions," he said. ($1 = 0.7325 Euros) (editing by David Stamp)