BERLIN – A top German government official on Wednesday dashed hopes of swift progress on strengthening Europe's financial sector, saying this week's summit of the bloc's 27 leaders won't make any final decisions on setting up a single banking supervisor.
Many "legal, technical and political details" for a continent-wide supervisory authority still have to be hammered out, said the official, who briefed reporters on condition of anonymity in line with government policy.
The single supervisor is part of the so-called banking union plan — one of the key projects to bind the 17 countries that use the euro closer together. By creating closer financial and political ties, the eurozone's leaders hope to secure the future of their currency.
The European Union's executive Commission, the European Central Bank and several EU nations such as Spain and France would like to see the new system in place on Jan. 1 but Germany has hit the brakes. Chancellor Angela Merkel has repeatedly stressed that "quality must trump speed."
But many details of the plan remain controversial, not least whether a joint supervisor will be accompanied by a Europe-wide bailout fund to keep bank failures from wrecking individual governments' finances. Many European leaders fear seeing their taxpayers' money spent to bail out banks in other countries without having a say in the decision.
The official in Berlin stressed that European leaders will only "reiterate their basic readiness" to create a banking union at their meeting in Brussels on Thursday and Friday. He insisted that leaders at their summit in June did not commit to any starting date for the mechanism and said: "We want to work fast but thoroughly."
The leaders' agenda at Thursday's summit is set to feature items that could be even more indigestible: long-term proposals for overhauling the EU, deepening economic and political integration.
German Finance Minister Wolfgang Schaeuble this week advocated a much stronger role for the EU's financial and monetary affairs commissioner — arguing that he should have the power to veto member countries' budgets if they violate the bloc's deficit rules.
Schaeuble's proposal would considerably increase the EU Commission's power and require EU treaties to be changed, both of which many member countries oppose.
French President Francois Hollande said in an interview that Europe must advance at several speeds, with the eurozone pushing ahead and its leaders holding more frequent, even monthly, meetings in order to achieve better cooperation and be able to respond faster to upcoming challenges.
"It's not about excluding other countries. Those who want to join the eurozone will be associated with our debates. Some counties don't want that. That's their choice. But why should they come and tell us how the eurozone should be led?" he told French daily Le Monde and other European newspapers in a joint interview.
Another thorny issue is when and how the eurozone's new permanent bailout fund, the European Stability Mechanism, will be able to directly recapitalize banks once a joint banking supervision system is in place.
Spain, which needs help to shore up banks reeling from a burst real estate bubble, and other countries are pushing for such a move, as it would allow countries to resolve their banks' problems without adding new debt to their governments' accounts. But Germany, Europe's biggest economy, again seems to be slowing talks down.
The German official said it was always clear that there could be no agreement on such wide-ranging changes by January, "even less that we will have a decision on recapitalizing banks through the ESM."
Germany, the Netherlands and Finland have argued that direct bank bailouts from the ESM should apply only to rescue operations embarked on once the new system is set up — not to existing bank rescue plans. That raises questions over whether the finances of governments such as Spain's will continue to be exposed to the fate of their banks.
Europe is in its third year of its debt crisis, brought on in part by overspending, excessive government borrowing and bailouts for weakened banks. Recessions in several countries have worsened the problem, and EU leaders have struggled to solve the twin problems of too much debt and too little growth.
"The worst - that is to say the fear of a eurozone collapse - yes, it is over. But the best isn't here yet," Hollande said. "It's up to us to build it."
Angela Charlton in Paris contributed reporting.
Juergen Baetz can be reached on Twitter at http://www.twitter.com/jbaetz