* Ministers' talks reveal deep divide on banking union
* Germany's Schaeuble says supervision not enough for direct
* France pushes for prompt action
By John O'Donnell and Annika Breidthardt
NICOSIA, Sept 15 Handing bank oversight to the
European Central Bank is not in itself sufficient to allow the
euro zone's rescue fund to directly assist banks, Germany's
Finance Minister said, warning he expected no such deal on
supervision in 2012.
Wolfgang Schaeuble made the comments after talks between EU
finance ministers on Saturday exposed deep divisions about a
proposed banking union. That may disappoint investors who had
been pinning hopes on a pledge by euro zone leaders to agree
sweeping new powers for the ECB in 2012.
This in turn had been expected to unlock the possibility of
direct aid to banks from the euro zone's rescue fund, the
European Stability Mechanism (ESM), for countries such as Spain
"We have the declaration of the heads of governments of the
euro zone that European banking supervision is a necessary but
not sufficient prerequisite," Schaeuble told reporters after the
ministers' meeting in Cyprus. "The rules of the ESM remain."
He said any country that is home to troubled banks would
still need to apply for an adjustment programme through the ESM.
The remarks contrasted with those of French Finance Minister
Pierre Moscovici, who called for quick action and underlined the
commitment by euro zone leaders to reach a deal this year.
"There are many questions on all of its aspects: the
calendar for implementation, the scope of supervision, the role
of the European Central Bank, the mechanism for supervision,"
Moscovici told reporters.
"These differences do not appear insurmountable at all to
me. I am convinced that we will get there before the end of
2012: both because it's our duty and we have the possibility to
do so," he said.
France's economic growth has ground to a halt since late
last year and its banks have investments in struggling countries
such as Greece.
Talks among EU finance ministers laid bare deep divisions
not only among euro zone countries but also with many
neighbouring states, worried that the ECB's power could impinge
on their banks.
Schaeuble reiterated his criticism of elements of the
proposal, cautioning against expectations that a deal could be
reached by the end of the year.
"I don't see that there can be direct recapitalisation
through the European Stability Mechanism already by January 1,"
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.
Officials in Berlin say it would be better to proceed more
slowly with the reforms to ensure a water-tight system.
Sweden underscored the depth of the division. "There is a
large number of countries that are very worried," said Finance
Minister Anders Borg, saying Poland, the Czech Republic and the
Nordic countries shared his concerns.
"There are very few countries outside (the euro) that think
this is a balanced solution."
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, earlier 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
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.
For the plan to work, however, it will require countries to
surrender a degree of sovereignty over banking supervision,
which has long been a national responsibility.
But even those who stay outside the framework can be
affected. Hungary, many of whose banks are owned by banks in the
euro zone and who would in future be supervised by the ECB, is
worried they will lose control of their lenders.