* Britain and Germany push for limits on ECB as bank
* No deal on supervision in sight as EU finance ministers
* EU countries to tackle other divisive issues such as bank
By John O'Donnell and Robin Emmott
BRUSSELS, Nov 13 EU finance ministers will seek
on Tuesday to break an impasse over a new regime to supervise
banks, but with much of the plan contested and time running
short to agree, the European Union risks seeing this centrepiece
So far, countries in the euro zone have attempted to contain
the financial crisis with piecemeal measures. The banking union
is the first concerted attempt to integrate the bloc's response
to problem lenders to win back confidence.
Finance ministers from the bloc's 27 countries will attempt
to advance talks on divisive questions such as the scope of the
European Central Bank's powers and breadth of the scheme that
would be a first step in a banking union.
"The issues are highly technical, politically charged and
running up against deadlines, but we must seek to reach
compromises to chart a path out of the crisis," said a senior EU
diplomat involved in the talks.
Some officials are worried that the banking union construct
is already crumbling in the face of powerful opposition both
within and outside the euro.
Germany, the leading economy in the euro zone, wants the
ECB's oversight curtailed to top banks while Britain, the
biggest country outside the euro, wants to stop the central bank
from taking decisions that infringe on its interests.
The prospect that the scheme will be watered down threatens
to undermine confidence in the euro and its flagging economies,
recently lifted by a pledge from the ECB to support stricken
countries with bond-buying if certain conditions are met.
"Britain's concern is legitimate," said the EU diplomat.
"But the problem is how to give the United Kingdom a voice when
it also wants to be able to block any rules it doesn't like.
That's a political problem."
Making the ECB the supervisor for lenders chiefly in the 17
countries that use the euro would be the first of three pillars
in a banking union and one EU leaders have committed to complete
by this year.
This would allow the euro zone's rescue fund, the European
Stability Mechanism, to help troubled lenders directly rather
than via their governments, breaking with the previous ad hoc
approach where smaller states such as Ireland were left to solve
their banks' problems alone.
Complementing this new regime of supervision with two
additional pillars -- a central scheme to wind down banks and a
combined means of deposit protection to prevent bank runs --
would complete the banking union, underpinning lenders and the
Spain, which is hoping to share the cost of its bank bailout
with stronger euro zone countries, underscored the significance
of a banking union on Monday.
"For Spain, the economic recovery is difficult, near
impossible until the doubts surrounding the euro are resolved
... so the Spanish government is convinced that banking union is
fundamental," Spain's Economy Minister Luis De Guindos told
members of the European Parliament in Brussels.
But some officials in Brussels are growing increasingly
alarmed by British and German opposition.
"We don't want a banking supervisor that doesn't have any
teeth," said one official. "It should not be a coordinating
body. The final decision must be made by the ECB and that goes
for small banks as well as systemic ones."
Britain has proposed a means for countries outside the
banking union to stop the ECB taking decisions that could affect
their interests. Since Britain would dominate this group, many
countries see this as London effectively demanding a veto and
Germany, which wants to keep primary oversight of the
country's community savings banks, is pushing to limit the ECB's
remit to systemically important banks.
It is also worried that the more banks are included in the
scheme, the higher the potential cost when, as is ultimately
planned, supervision is backed up by a central fund to pay for
the closure of troubled lenders. Germany, Europe's largest
economy, would have to foot a large part of any such bill.
The EU ministers will also discuss new rules governing the
amount of capital banks must set aside to cover unpaid loans and
other risks as well as a proposal, backed by Germany but opposed
by Britain, to cap bankers' bonuses at three times their salary.