* Sweden, Austria warn new ECB powers may require EU treaty
* UK and Germany push for limits on ECB as bank watchdog
* EU's Barnier - deal on new regime difficult but possible
By John O'Donnell and Robin Emmott
BRUSSELS, Nov 13 Divisions in Europe over a new
regime to supervise banks overshadowed fresh attempts by EU
finance ministers on Tuesday to agree a centrepiece reform that
some officials fear could unravel.
After three years of piecemeal crisis-fighting measures,
agreeing on a banking union would lay a cornerstone of wider
economic union and mark the first concerted attempt to integrate
the bloc's response to problem lenders.
Finance ministers and officials from the bloc's 27 countries
met in Brussels to attempt to advance talks on divisive
questions such as the scope of the European Central Bank's
cross-border supervisory powers, which would be a first step in
a banking union.
At a news conference with Germany's Wolfgang Schaeuble,
French finance minister Pierre Moscovici said agreement could be
"Work continues for a few more weeks to reach a definitive
agreement, but France and Germany aim to reach the same
objectives with the same calendar, the same method," he said.
Critical remarks from other countries painted a different
Sweden flagged what it believes to be a fundamental flaw in
the plan -- that there is no acceptable way of allowing non-euro
states to join the scheme on an equal footing with those using
the currency. It raised the prospect of a laborious change to EU
law to set up the system.
"The ECB could be the supervisor but then we need to
consider a treaty change," Swedish Finance Minister Anders Borg
told reporters. "Either you must change the treaty so it's clear
that every member is treated equitably or you need to move it
(supervision) outside of the ECB."
His concerns were echoed by Austria's finance minister, who
said countries outside the euro that want to join the scheme
needed to be put on a par with euro states. This will be
difficult as bank supervision will be run by the ECB and it is
answerable only to the 17 countries using the euro.
"Non-euro members also want to participate and want to have
equal participation procedures," Maria Fekter told peers, in
comments broadcast on television, adding: "It could also be a
question if the treaty change would be the better solution."
Michel Barnier, the European Union official responsible for
designing the new supervision law and negotiating its
implementation, said although treaty changes were possible in
the future they were not on the table now.
The European commissioner responsible for regulation also
sought to play down talk of delay in reaching agreement on the
framework beyond the year-end, a target suggested by EU leaders
in June. "I think agreement in December is possible although
it's difficult," he said.
There is growing concern in Brussels that the construct is
already crumbling in the face of powerful opposition both within
and outside the euro.
Germany, the leading economy in the euro zone, is pushing to
restrict the ECB's oversight 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.
"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."
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 the year-end.
When supervision is in place, it would pave the way for the
euro zone's rescue fund, the European Stability Mechanism, to
help troubled lenders directly rather than via their
governments, breaking with the previous approach where smaller
states such as Ireland were left to solve their banks' problems
Longer-term plans for 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
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, wants to limit the ECB's
remit to systemically important lenders.
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 also discussed 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.
Barnier urged EU countries to back stiffer rules on bonuses,
after earlier late-night talks on Monday between country
diplomats and the European Parliament failed to reach agreement.