European Union finance ministers will try to finalise plans to put the European Central Bank in charge of supervising all euro zone banks on Tuesday, but divisions over how ECB oversight will work threaten to undermine one of Europe's boldest reforms. While leaders are agreed that creating a banking union is a sound idea, they cannot agree on how best to structure it, how far to go in unifying banking systems to share risk and how to prevent discrimination between euro- and non-euro countries. With time running out to meet a pledge of completing the legal framework for banking union by the end of the year, Germany is sticking to its position that only big banks should come under the ECB's scrutiny, while Britain wants the ECB's influence curbed so that it does not restrict London's power. Further complicating the debate is Sweden, a non-euro zone country that owns most of the banks in Finland, which uses the euro. Sweden is concerned that if the ECB is to have oversight of assets it owns, it must have some level of equal representation at the ECB.
And then there are non-eurozone countries that aim to join the currency in the years ahead, such as Poland and Hungary, which also want to make sure that they are not disadvantaged by the ECB taking a more powerful oversight of their banks. France finds itself trying to bridge the differences and is pushing ministers to agree the first pillar of banking union - which involves making the ECB the supervisory authority – as soon as possible, in part to shore up its own banking system. EU leaders hope that by setting up a single, powerful banking authority and later establishing a resolution fund for distressed banks, they will cut the link between indebted
countries and their banking systems and start to right some of the wrongs that have exacerbated the debt crisis. "Banking union is one of our priorities," French Finance
Minister Pierre Moscovici told the European Parliament during a hearing on Monday. "We must break the link between the financial crisis and the sovereign crisis.