EU leaders drop plan to fast-track banking union as Germany resists

BRUSSELS (Reuters) - European Union leaders on Thursday abandoned plans to seek faster completion of a banking union via a deposit guarantee scheme after Germany opposed the move and had it removed from draft conclusions prepared earlier, diplomats said.

Under the banking union project, all large euro zone banks are now under a single supervisor -- the European Central Bank -- and a common method of winding down banks that fail has been put in place, including a joint fund, paid into by banks themselves, to cover the costs.

But the last element of the banking union, a joint EU deposit guarantee scheme, is controversial because Germany is strongly opposing ideas under which money to guarantee German savers’ deposits could be used to rescue savers elsewhere.

Talks on how to create an EU-wide deposit guarantee plan, to boost confidence in banks, have become stuck. The scheme is now likely to progress in stages, over years, to accommodate Berlin under a European Commission proposal expected later this month.

EU leaders had not planned to make any direct reference to the deposit guarantee scheme, as under the draft conclusions of the EU summit, seen by Reuters, they only said:

“The European Council took stock of the discussions on the Presidents’ report on completing Europe’s Economic and Monetary Union. It asked for work to be intensified on all aspects, stressing the importance of completing the Banking Union.”

But the reference to completing the banking union was already too much for Berlin and it had to be removed from the final version of the conclusions, EU diplomats said.

Reporting by Jan Strupczewski; Editing by Mark Heinrich