BRUSSELS - EU finance ministers narrowed Friday some of their differences over "Banking Union", a new framework meant to prevent a repetition of the financial meltdown that plunged Europe into crisis.
But ministers scaled back initial plans to hammer away at a still long list of obstacles deep into the night, leaving the clock ticking on much-needed compromises if EU leaders' timetable is to be respected. "The issues needing resolved will be resolved between now and Christmas," German Finance Minister Wolfgang Schaeuble said after the talks wrapped up, although he acknowledged "fundamental" problems with the scheme.
Having last month approved a first step in the plan -- the Single Supervisory Mechanism (SSM) to oversee eurozone banks -- the ministers are under pressure to agree a Single Resolution Mechanism (SRM) by year's end.
The SRM would serve to close failing banks and would also need to be complemented eventually by a deposit guarantee regime to protect savers.
Combined, the three pillars of the scheme will provide a unified regulatory framework intended to prevent taxpayers from paying for disastrously expensive bank bailouts which led to years of austerity and recession in the eurozone.
"Sealing a deal in five weeks will only be possible if all EU member states are willing to compromise," said EU Financial Markets Commissioner Michel Barnier.
He said the EU executive was ready to adapt its legislative proposals, Barnier declaring himself "open to suggestions" on watering down his preferred position that the SRM be applied to all eurozone banks, and not just the biggest.
France wants the SRM to embrace all of Europe's banks while Germany prefers only the top 130 to fall under its remit.
A key precursor demanded by the European Central Bank, which is to act as the supervisor of top banks, was to clarify arrangements for the recapitalisation of banks that are found to have holes in their books, and ministers made headway on that. To put the banking union scheme in place by 2015 as planned, ECB board member Jorg Asmussen said there must be a decision on SRM by year's end because it will still need to be approved by the European Parliament, whose mandate ends in April.
With officials at the talks saying it was "pointless" to spend the night on differences at this stage, ministers contented themselves with spelling out the backstop arrangements for banks subject to next year's asset quality reviews and stress tests. Where capital is needed, lenders should turn first to private investment, then national and euro area funds, with EU instruments as a last resort.
Ministers emphasised there should be "equal treatment" between eurozone and non-euro EU countries that also have banks participating in the SSM and may potentially call on recapitalisation via the EU's ESM bailout fund.
Powerhouse Germany notably is reluctant to cede control of its banks.
And along with some other nations, Germany is opposed to the EU executive, the European Commission, being given the authority to decide whether to save or to liquidate a struggling bank.
It favours handing that authority to the 28 EU national governments in meeting in the EU Council.
The EU's second economic power France on the other hand believes the Commission would be best placed due its ability to act quickly.