* Spain's De Guindos says banking union vital to euro's
* Sweden's Borg says compromise to reach deal possible
* Austria's Fekter sees compromise on scope of ECB
By John O'Donnell and Robin Emmott
BRUSSELS, Dec 4 Divisions over how European bank
oversight will work threaten to undermine one of Europe's
boldest reforms as finance ministers finalise plans to put the
European Central Bank in charge of supervising all euro zone
banks on Tuesday.
While ministers agree that creating a banking union is a
sound idea, they cannot agree how best to structure it, how far
to go in unifying banking systems to share risk and how to
prevent discrimination between euro and non-euro countries.
With time running out to meet a pledge to complete the legal
framework for banking union by the end of the year, Germany is
sticking to its position that only big banks should come under
European Central Bank scrutiny, while Britain wants the ECB's
influence curbed so that it does not restrict London's power.
Spain's Economy Minister Luis De Guindos said the future of
the euro depended on a deal.
"Banking union is crucial to remove all doubts about the
future of monetary union," he told reporters as he arrived at
Complicating the debate is Sweden, a non-euro zone country
that has substantial banking interests in Finland, which uses
the euro. Sweden is concerned that if the ECB is to have
oversight of assets it owns, it must have some level of equal
representation at the ECB.
Sweden's finance minister Anders Borg appeared to soften his
stance on Tuesday, having last month threatened to block an
agreement, but cautioned that ministers may have to meet again
to clinch a deal.
"There can be no unfair treatment of the non-euro countries.
There must be safeguards and we must be able to set our own...
higher capital requirements for banks," Borg told reporters.
Diplomats also need to address the concerns of non-euro zone
countries that aim to join the currency, such as Poland and
Hungary, which also want to ensure they are not disadvantaged by
the ECB taking a more powerful oversight of their banks.
France has found itself trying to bridge the differences and
is pushing ministers to agree the first pillar of banking union
- which involves making the ECB the supervisory authority - as
soon as possible, in part to shore up its own banking system.
EU leaders hope that by setting up a single, powerful
banking authority and later establishing a resolution fund for
distressed banks, they will cut the link between indebted
countries and their banking systems and start to right some of
the wrongs that have exacerbated the debt crisis.
But Germany is concerned the project will develop into a
scheme under which Berlin is left to foot the bill for banks too
weak to survive on their own. And it is wary about directly
recapitalising banks from the euro zone's rescue fund, which
will be possible once banking union is up and running.
It wants the ECB's remit limited to bank big enough to pose
a threat to financial stability, a restriction some diplomats
said would undermine the scheme.
Austria's Finance Minister Maria Fekter said that compromise
was also possible on this point.
"We will probably choose an approach with several tiers, so
that the direction is set (by the new institution) and the...
national authorities are used operationally in the controlling
on the ground."
EU leaders agreed at a summit in October that they would
have the framework for banking union agreed by year-end and the
ECB would start to take over responsibility during the course of
next year. But Germany is cautious about the pace.
CLOSE TO DEAL
If finance ministers can reach an agreement on Tuesday, it
might allow them to finalise the framework by a summit of EU
leaders on Dec. 13-14, as long as the European Parliament also
plays its part and gives its approval. Hitting the deadline
would send a strong signal, but it remains a long shot.
One of the trickiest obstacles is how to ensure that any
supervisory system involving the ECB - an institution set up to
manage euro zone issues alone - does not discriminate against
non-euro zone countries such as Sweden and Denmark.
Hungary is another challenging case - about half of its
lenders are owned by euro zone banks, meaning Budapest has a
strong incentive to prevent the ECB taking decisions that could
hurt its national financial system or sideline local lenders.
The ECB also has potential conflicts of its own to resolve.
Its first responsibility is to monetary policy stability, but if
it takes on the task of overseeing euro zone and possibly all EU
banks as well, it must ensure there is no confusion or conflict
of interest between the two mandates.
Another important reform, the introduction of stricter rules
on banks' capital reserves in Europe, known as Basel III, is
unlikely, however, to be finalised by ministers, delaying the
new regime beyond a planned start on Jan. 1 next year.