* Schaeuble says banking union "a priority project"
* France welcomes comments, stresses urgency of plans
* Central banks warn against harming German competitiveness
By Stephen Brown and Annika Breidthardt
BERLIN, May 7 German Finance Minister Wolfgang
Schaeuble signalled a softer stance on European banking union on
Tuesday, saying that rather than waiting for a treaty change,
governments should coordinate policies on closing banks.
A banking union is critical to Europe's efforts to overcome
the euro zone's sovereign debt crisis. A first step involves
creating a Europe-wide banking supervisor under the European
Central Bank, to be followed by a scheme for bank resolution -
closing or salvaging struggling banks.
Just last month in Dublin, Schaeuble appeared to slam on the
brakes by saying the EU needed to consider treaty change due to
the "doubtful legal basis" on which this project rested. That
sparked a backlash from EU officials and partners like France.
But Schaeuble struck a more conciliatory tone on Tuesday,
saying at a joint event in Berlin with his French counterpart
Pierre Moscovici that banking union was a "priority project" and
promising to press ahead with it "quickly".
Banking union could move ahead for now by harmonising
national resolution schemes, he said.
"We must make the best of it on the basis of the current
treaties, and where we do not manage to achieve things
institutionally, then we will work inter-governmentally or even
bilaterally," he said at the Berlin university event.
A German finance ministry official said Schaeuble's "ideal
scenario" was to get agreement on banking resolution before the
European summer recess, adding that without a new EU treaty
providing legal backing for a common resolution authority, "you
can work with a network of national authorities".
That chimed with Moscovici's comments at a news conference
later in Berlin that the EU should aim to make "decisive
progress" by the end of June on the banking union.
French President Francois Hollande welcomed Schaeuble's
comments, saying: "It is absolutely essential that we can have
the banking union without changing treaties - that has always
been France's position."
International Monetary Fund chief Christine Lagarde
emphasised the need for broad agreement, telling students in
Amsterdam: "You need to have all the players at the table."
FRANCE URGES FLEXIBILITY
Germany, which holds an election in September, has
previously emphasised caution and careful preparation in the
drive for a banking union, fearing its citizens might wind up
picking up much of the liabilities.
German Chancellor Angela Merkel has insisted on austerity
measures to cut the euro zone's public debt and overcome the
crisis, but Moscovici urged Berlin to show more understanding
for the plight of struggling southern countries.
"It is true that Germany is very attached traditionally to
rules and discipline, which are things we need - but at the same
time we have to be capable of flexibility, of understanding and
of respecting our diversity," the French Socialist said.
Last week, the Commission, the EU's executive body, granted
France - the euro zone's second largest economy - two more years
to cut its public deficit to below three percent of gross
domestic product (GDP).
Unlike Germany, where the economy remains relatively robust
and unemployment is near two-decade lows, France has record
Moscovici said countries had to reduce their public debt but
at an appropriate pace. "We will continue our efforts to tackle
the structural (budget) deficit," he said. "France is a serious
country conducting a credible policy, we do not renounce (fiscal
Some experts have also suggested higher German wages would
encourage workers to spend more on goods and services in other
euro countries, but the heads of both the German and French
central banks cautioned against any steps that might undermine
"Weakening Germany would just weaken the whole euro zone,"
Bundesbank chief Jens Weidmann told the news conference with
Schaeuble, Moscovici and French central banker Christian Noyer.
Echoing his comment, Noyer said: "The issue is not, and
cannot be, about reducing Germany's performance and its export
capacity. It is about raising the euro zone's overall
performance ... It clearly requires competitiveness reforms in