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WASHINGTON, April 19 (Reuters) - World financial leaders urged the European Union on Friday to quickly complete its banking union to help growth, but Germany stood firm that the next step toward such a union be through a lengthy and risky process - a change of EU law.
The banking union is one of the key projects to improve the economy of the 17 countries sharing the euro. It would help eliminate many of the problems that now hold back the flow of credit needed to finance a euro zone economic recovery.
"In the euro area the foundations of economic and monetary union should be enhanced, including through an urgent movement towards banking union," finance ministers and central bankers from the G20 leading economies said in a statement.
The EU has already made the first step - it agreed that the European Central Bank would take over the supervision of all banks in the euro zone from July 2014 in what is called the Single Supervisory Mechanism.
The next step is to agree how the euro zone will deal with closing down failed banks and how it will pay for that in the interim period before enough fees from the financial industry accrue to cover the potential expense.
The idea is to use the euro zone bailout fund, the European Stability Mechanism, to provide the necessary money for resolving failed banks in that period, but that means the use of euro zone taxpayers' money.
The German government, which faces elections in September, believes that without a treaty change the potential use of German taxpayer money for winding down a bank in another euro zone state could give grounds to question it in the German constitutional court.
"The German government is willing to change the treaties: the sooner, the better," German Finance Minister Wolfgang Schaeuble told reporters earlier on Friday.
"We should do what is necessary correctly, one must have the strength to do so," he said. "The German government is strongly determined to go this way," he said, adding there was a possibility the changes could be introduced through a simplified procedure to speed the process.
Such a procedure can be used to amend the EU law if the change does not transfer new powers to the European Union from the national level. It is not clear if establishing a euro zone mechanism to resolve failed banks would qualify as such.
While the simplified way shortens the time needed by eliminating some earlier government negotiations, the changed treaty still needs to be ratified by all national parliaments in the 27-nation bloc, and this is usually a lengthy process.
EU officials are also concerned that if the EU opens the possibility of treaty change, euro sceptic Britain would use the opportunity to demand to get back some of the powers already ceded to the union in exchange for its support.