BRUSSELS (AP) — European Union finance ministers moved closer Wednesday to creating a single supervisor for their banks after France and Germany said they had largely patched up their differences over the new body's powers.
The agreement on a banking supervisor is a vital part of European countries' efforts to protect themselves from future financial crises. Recently, it seemed unlikely a year-end deadline to set up the supervisor would be met because of disagreements between France and Germany. Wednesday's meeting was called because Europe's two biggest economies failed to find a compromise last week.
But a deal now appears within reach. As he entered the meeting, German Finance Minister Wolfgang Schaeuble wouldn't commit to inking a deal at Wednesday's meeting, but he sounded an upbeat note.
"I am confident that we will find a solution for banking supervision in time for Christmas," he said.
His French counterpart, Pierre Moscovici, said such a common position represented a big step toward a solution.
"We have all the elements for an agreement here," he said.
While France had wanted to have each of the 6,000 banks in the 17 EU countries that use the euro supervised by the European Central Bank, Germany called for a system that would only apply to the biggest banks.
On Wednesday, Moscovici said France was willing to accept a compromise that would see banks with more than €30 billion ($39 billion) in assets supervised, leaving smaller banks to report to national authorities. Some smaller banks that represented a significant part of their national economies could also fall under ECB supervision.
France and Germany had also disagreed over how to keep the ECB's supervisory responsibilities separate from setting monetary policy and how quickly the supervisor should be set up.
Despite signs of a compromise between the two, the meeting — on the eve of a summit of EU leaders — was still shaping up to be a tough one.
The 10 European Union countries that don't use the euro will be allowed to choose to put their banks under the authority of the new supervisor; some have expressed interest in that since it would show investors that their lenders are solid.
But other countries such Sweden and Britain, which don't want to submit to the new supervisor, warned that they wanted to find a way to protect their voices in the European Banking Authority, which sets the rules for banks across the 27 nation union, regardless of currency. Those countries fear that a united eurozone machine could outvote them in the EBA.
Swedish finance minister Anders Borg said he thought agreement on the supervisor was likely but called it a "sad day for Europe because we will be more divided than before."
Setting up a supervisor is the first step in a broader plan to have a banking union, which could help European countries to avoid a repeat of the region's financial problems.
One of the seeds of the current crisis was bad real estate loans, which dragged down the banking sector across Europe and threatened to derail the governments that were then forced to bail them out. However, national supervisors have often been reluctant to play tough with their banks.
A common European supervisor, proponents say, would bypass national political considerations and do what is needed to keep the continent's financial sector healthy.
The supervisor must be up and running before other measures can be introduced: Europe-wide depositors' insurance; a single method for winding down bankrupt banks; and allowing the European bailout fund to directly help banks in trouble instead of lending money only to governments.
Because the supervisor is the starting point for implementing vast powers, some have pushed for it to be put in place quickly, while others have warned that quality should be more important than speed. While the ministers have committed to reaching a deal by the end of the year, it could take months or even a year before it takes up all of its powers.
A two-day summit of European heads of state and government starting Thursday will seek to reach agreement on further measures promoting the banking union.
Finance ministers from the eurozone nations will also assess early Thursday the latest Greek initiative to lighten its debt load.
On Wednesday, the Greek debt management agency said Greece will buy back €31.9 billion ($41.5 billion) of its bonds from private investors at a third of their face value, lightening its crushing debt load and meeting a key condition to receive vital rescue loans.
But the deal will be costlier than originally budgeted, and must be approved by bailout creditors who are lending Greece the funds necessary to stay afloat.
Don Melvin in Brussels and Sylvie Corbet in Paris contributed to this article.