* Barnier makes new proposals aimed at compromise
* German finance ministry rejects, says Berlin's position
* Project may be crucial to drawing a line under euro crisis
as economies improve
* German coalition talks may delay any progress this year
BERLIN, Oct 9 Germany rejected a compromise on
the EU's planned banking union floated by the bloc's regulation
chief on Wednesday, indicating that Berlin is sticking to its
tough stance after last month's election.
While European leaders endorsed the idea of a banking union
at the height of the debt crisis, political impetus is waning,
especially with growing resistance from Germany.
The original idea was to create a system to shift
supervising and dealing with troubled banks from a national to
European level but Berlin has been chipping away at that,
fearing it could leave it on the hook for ailing institutions in
Spain and elsewhere.
Commissioner Michel Barnier said he was ready to compromise
to bring momentum to the stalled project.
He told a German paper that any role for the Commission as a
wind-up agency could be limited in time and the European
Stability Mechanism (ESM) could take over.
But a German finance ministry spokesman wasted little time
in knocking down the idea, saying that would still pose legal
"Any temporary solutions must be legally sustainable and
legally workable," said the spokesman at a regular government
"Barnier's proposal does not clear up the legal concerns,
nothing has changed in Germany's position," he said.
The European Commission first proposed that it and a related
board should have the authority to close banks, but ran into
worries from Germany and some other members about Brussels
getting too much power.
Setting up the planned system raises an array of political
and legal complications, including who decides when an ailing
bank must be closed and who pays the bill - an issue of special
concern to Germany, the euro zone's largest economy.
Berlin's response may be a disappointment to some EU
officials who had hoped Germany might soften its stance after a
Sept. election in which Chancellor Angela Merkel's conservatives
were elected the biggest party.
The euro zone's economic prospects are improving; the IMF
said on Tuesday that Spain, Italy, Portugal and even Greece
would return to growth next year. The latest batch of political
nerves in Italy have also been calmed for now and some believe
the banking union could be the key to putting a lid finally on
five years of financial turmoil in Europe.
But Merkel is in the lengthy process of finding a coalition
partner and some EU officials worry that uncertainty over the
shape of the government may make a deal this year even more
In a further possible hitch, EU lawyers have questioned the
plan's legal viability.
Barnier had appeared to be offering Berlin an olive branch.
"We could agree from the start that the Commission would
only take on the task of banking resolution for a limited time
and we would find another solution for the longer term," Barnier
said in an interview with Handelsblatt, published on Wednesday.
"The bailout fund, the European Stability Mechanism, could
take over banking resolution as soon as it has become a European
institution. But for that we would need to change the European
Constitution," he added.
In its present form the ESM, officially established in
February 2012, issues debt in order to fund loans and other
forms of financial assistance to euro zone states.
The German finance ministry spokesman described the
possibility of combining a resolution authority with the ESM as
a "conceivable option" although treaty change would be needed.
The structure of the ESM means that if it did assume
responsibility for winding up banks, Germany could be able to
veto any decisions.
On Tuesday, German Finance Minister Wolfgang Schaeuble - who
may or may not continue in that role once Merkel has formed a
government - came up with a compromise suggestion himself.
He said the resolution agency's remit could be limited to
the largest systemically relevant banks.
But Barnier, in turn, dismissed this idea.
"Small banks can also go bankrupt and in doing so rock the
whole system... I don't think much of the idea of leaving the
resolution of smaller banks to national supervisory agencies,"
said Barnier. "But it is true that we must find a compromise."