* Ministers discuss plan to give ECB powers to police banks
* Germany's Schaeuble raises concerns, says no quick deal
* France pushes for prompt action on blueprint
By John O'Donnell and Daniel Flynn
NICOSIA, Sept 15 German reticence over how fast
to centralise banking supervision in Europe stoked tensions with
France on Saturday, which urged prompt implementation of a plan
designed to tackle the financial crisis and help underpin the
The reform, which needs to be approved by the European
Union's 27 member states, aims to break the link between
struggling banks and indebted governments, an interdependence
that has exacerbated the region's debt crisis.
By empowering the ECB to police all banks in the euro zone,
the proposal from the European Commission hopes to break this
vicious circle, laying the ground for deeper fiscal cooperation
across Europe to underpin the euro currency.
On Saturday, EU finance ministers met in Cyprus to discuss
the proposal but a split emerged after experts outlined at their
earlier gathering on Friday how banking union could work.
Germany, which is keen to retain primary oversight for its
regional savings and cooperative banks, had questioned whether
the ECB should get the authority to supervise all 6,000 banks in
the euro zone, arguing that it would overstretch the bank.
German Finance Minister Wolfgang Schaeuble reiterated this
view on Friday, cautioning against expectations that a deal
could be reached by the end of the year, a target set up euro
"My concern is always that you run the danger of creating
expectations, also among financial market participants, that you
then cannot fulfil," Schaeuble told journalists.
Officials in Berlin say it would be better to proceed more
slowly with the reforms to ensure a water-tight system is put in
Investors are following developments closely, as handing
powers of supervision to the ECB unlocks the possibility of
direct aid to banks in Spain, for example, from the euro zone's
permanent rescue scheme, the European Stability Mechanism.
"I don't see that there can be direct recapitalisation
through the European Stability Mechanism already by January 1,"
said Schaeuble, adding that strict conditions would be applied
to such assistance.
In contrast to Germany, France, where economic growth has
ground to a halt since late last year and where banks have
investments in struggling countries such as Greece, called for
When asked if he agreed with Schaeuble that establishing the
supervision element of a banking union by the start of next year
was unrealistic, French Finance Minister Pierre Moscovici
"We can, and we have to, go fast. We must not waste time in
resolving the euro zone crisis," he said, adding that joint
supervision should apply to all the region's banks. "The euro
crisis is affecting everyone in the euro zone, including
Germany. It is not a question of rushing but we must keep up the
rhythm of reform."
Establishing a common framework for dealing with problem
banks would mark a departure from the previously haphazard
approach taken by the euro zone's 17 members that has frustrated
investors and helped drive up borrowing costs for weaker states.
A banking union foresees three steps: the ECB getting the
power to monitor all euro zone banks and others in the wider EU
that agree to the oversight; the establishment of a fund to
close troubled banks; and a fully fledged scheme to protect
citizens' deposits across the euro zone.
Given that day-to-day supervision of banks would remain the
task of national regulators, some officials suspect that
Berlin's real concern is that a banking union would see it
paying the costs of propping up lenders in weak countries.
Joerg Asmussen, a member of the ECB's Executive Board that
forms the nucleus of its policymaking, warned that a banking
union could not work without a fund paid for by industry to
cover the cost of closing banks and a deposit protection scheme.
Experts from think tank Bruegel delivered a similar message
to ministers on Friday.
The close ties between governments and the banks they
supervised and on whom they also relied to buy their debt, has
dragged both ever deeper into crisis.
A banking union would break this link by making the policing
of banks supranational and establishing central schemes paid
into collectively to cover the costs of closing failed lenders.