By Annika Breidthardt and Martin Santa
VILNIUS (Reuters) - Germany and Finland said on Friday the European Commission should not have the final say on when and how a euro zone bank could be closed, a position that could further delay the bloc's banking union project.
A single resolution authority for all euro zone banks, with a dedicated fund to finance its decisions, is intended to complement the single bank supervisor - the European Central Bank - as part of a banking union that would break the vicious circle between weak banks and indebted governments.
The ECB is to take up its new responsibilities in autumn of 2014 and EU policymakers hope to have the resolution body ready at the same time or soon afterwards.
The European Commission proposed in July that it have the final say on resolving banks at a pan-European level, even though it could act on the recommendation of a Single Resolution Board that would be made up of representatives of national authorities and the European Central Bank.
Berlin has consistently said those powers should be exercised at a national level.
"Resolution should generally be done by national authorities and not by the EU Commission," German Finance Minister Wolfgang Schaeuble told the Boersen Zeitung newspaper. "It is not an appropriate central resolution authority.
"Instead, where necessary in disputed cases, a central resolution board should be able to take binding decisions when there are conflicts between national resolution authorities," he said.
Germany, reluctant to transfer new powers to the EU executive, has long argued that the creation of the single resolution authority will require a change to the EU treaty to give the new body proper legal grounds.
European Union lawyers said in an opinion prepared for the finance ministers meeting in Vilnius that no treaty change would be necessary if the project ensured the budgetary sovereignty of governments.
Under the Commission proposal, which is to be discussed for the first time by EU finance ministers on Friday and Saturday, the central role of the EU executive would ensure bank resolution decisions are in line with EU regulations on the EU's single market and state aid.
The Commission believes that it would also safeguard the independence and accountability of the mechanism.
Finnish Finance Minister Jutta Urpilainen thought differently.
"The Commission's role is one of the issues that we want to discuss. For us it is important that the authority that in future will decide what will be done for troubled banks is as independent as possible and that also its mandate was narrow," Urpilainen said on entering the talks.
"We see that the authority operating under pressure should be as independent as possible. We have not been very excited that the Commission would act as this authority," she said.
EU ministers plan to reach a deal on how to set up the single resolution authority by December, when they would start negotiations on the issue with the European Parliament.
"Let's stick to the timeline and finalize it," the chairman of euro zone finance ministers Jeroen Dijsselbloem told reporters. "We should try to focus on the legal basis, on the governance of the resolution authority, governance of the fund and hopefully make some progress."
(Writing By Jan Strupczewski, editing by Mike Peacock)