|Germany's finance minister has claimed that a banking union could require changes to EU law, potentially putting the brakes on a plan designed to prop up the euro.
Wolfgang Schaeuble said that Europe’s Lisbon treaty had to be changed to allow common rules on shutting troubled banks – a key element of the union.
“Banking union only makes sense... if we also have rules for restructuring and resolving banks. But if we want European institutions for that, we will need a treaty change,” he said after a meeting of European finance ministers.
The banking union is one of the currency bloc’s central measures to stabilise the euro and prevent taxpayers from footing bills for bank rescues. But Mr Schaeuble, who has long held reservations about the banking union, said they would “not be able to take any steps on... a doubtful legal basis”.
He also made clear that legal change would be necessary for the unified scheme for tackling failed banks. Altering the Lisbon treaty, which underpins the bloc’s law, would be lengthy as it needs the agreement of all member states.
As a first step towards the union, the European Central Bank is poised to start supervising eurozone banks from July next year. A bank resolution scheme to salvage or close struggling banks should then follow.
Mr Schaeuble’s comments came as David Cameron and his German counterpart, Angela Merkel, held talks at her rural retreat. Officials at Number 10 stressed the warmth of the relationship between Mrs Merkel and Mr Cameron, who – along with his family – was given the rare accolade of a stay at the mansion.
Having held talks at Mrs Merkel's guest residence at Schloss Meseberg, Downing Street said the two leaders had agreed on the "urgent need" to make Europe more competitive and flexible. The pair also want the EU to be prepared to make an "ambitious offer" in trade talks with the US.
"They agreed on the urgent need to make Europe more competitive and flexible and talked about ways to achieve this. And they discussed how we can work together in the run up to the May and June European Councils to make further progress," said a spokesperson for Number 10.
"They both want to see faster progress on trade deals between the EU and the rest of the world. And they agreed that the EU should be prepared to put an ambitious offer on the table for EU-US negotiations which we want to get underway this Summer."
America and the EU aim to start negotiating a vast free trade pact by June, but the plan faces many hurdles before it could help revive the world's top two economies. The deal would be the most ambitious since the founding of the World Trade Organization in 1995, embracing half of world output and a third of trade.
The deal has support at the highest level - it was mentioned by US President Barack Obama in his speech to Congress and cast as a central pillar of Britain's G8 presidency this year.
The prime minister used his overnight stay in the Brandenburg countryside to set out his plans to renegotiate Britain's relationship with Europe, but the Downing Street statement offered no clue as to how they were received.
Mrs Merkel is anxious that Britain should remain in the EU and has made no secret of her concerns about Mr Cameron's plan to stage a referendum on continuing membership if the Conservatives win the next general election in 2015.
"On the EU, the PM set out his approach to European reform, following on from his speech in January," the Downing Street statement said.
The two leaders also discussed the forthcoming G8 summit, which Mr Cameron is hosting at Lough Erne in Northern Ireland, and the need to show "global leadership" in tackling tax evasion and aggressive tax avoidance.
"They also discussed the upcoming G8 summit in Lough Erne and especially how the G8 countries should show global leadership by taking concrete action on tax evasion and aggressive tax avoidance and making clear that everyone must pay their fair share of taxes," Downing Street said on Saturday.
"They will also work together at the May European Council and the G20 to achieve wider progress on global standards for the exchange of tax information."
The prime minister has already said that he will use Britain's chairmanship of the G8 this year to "drive a more serious debate on tax evasion and avoidance".