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BERLIN, Dec 9 (Reuters) - German Finance Minster Wolfgang Schaeuble has signalled a readiness to compromise on the European Union's planned banking union and said leaders are working intensively to agree on a legal framework by Christmas, German media reported.
His comments will revive hopes that European leaders can finish planning a single supervisory mechanism for euro zone banks under the European Central Bank (ECB) by the end of the year as originally planned.
EU finance ministers had been at odds over how the mechanism should be structured and how much power the ECB should have, particularly if it conflicts with its monetary policy aims.
"We are working intensely to get the legal framework for a banking supervisor settled before Christmas," Schaeuble told German newspaper Bild am Sonntag, in an interview published on Sunday.
"We can start building up the supervisory body in 2013," he added.
Spiegel magazine reported that Schaeuble was prepared to seek a compromise with France by suggesting the supervisory body could be domiciled in Paris, rather than at the ECB's headquarters in Frankfurt.
Finance ministers are due to meet on Dec. 12, the day before a European Union summit, to try and reach an agreement before EU leaders gather.
Once the legalities are worked out, the ECB is expected to steadily take over responsibility for overseeing all 6,000 euro zone banks, taking up to a year to complete the process.
Negotiating differences had dominated in previous meetings to discuss the banking union. Schaeuble, in contrast to French Finance Minister Pierre Moscovici, did not want the final say on supervisory issues to rest with the ECB's governing council.
According to Spiegel, Schaeuble wants a clear separation between the ECB's supervisory and monetary policy duties. Placing the supervisory body in Paris could help achieve this.
Bundesbank chief Jens Weidmann echoed Schaeuble's call for a clear separation of monetary policy and supervision and called for a change to the European constitution in order to clarify the separation, in an interview with Welt am Sonntag newspaper.
"I cannot see how with the current legal framework we can transfer supervisory duties to the ECB. A clean legal solution would require a change to the constitution," he told the paper.
Such a change would require extra time and could delay the introduction of an EU-wide banking union. But he added: "If politicians really want a banking union, then they will be able to make the necessary political decisions swiftly." (Reporting by Alexandra Hudson; editing by Jane Baird)