Berlin eyes deal on EU bank supervision

(BERLIN) - Germany believes a breakthrough is possible in talks among European finance ministers later on Wednesday on a broader system of banking supervision in Europe, a senior government official said.

The official, who declined to be named in line with government policy, told reporters: "We expect big progress, possibly even a breakthrough in the negotiations."

"It is correct that in recent days ... there has been intensive consultation between the French and the German finance ministries to prepare this meeting," added the source.

"With everyone prepared to find a solution, a solution must be possible," the German official said.

Chancellor Angela Merkel's spokesman Steffen Seibert told a later briefing meanwhile that German Finance Minister Wolfgang Schaeuble had expressed confidence in Cabinet that a deal could be done.

The official was unwilling to be drawn on the details of the compromise, but the Sueddeutsche Zeitung daily said Wednesday that the ECB would supervise all "systemically relevant" and state-supported banks in the EU.

Other banks would continue to fall under the aegis of national supervisors although the European Central Bank would be given the power to intervene under certain conditions, the newspaper reported.

German officials said the main issues were how to separate the ECB's monetary policy function from its banking supervisory role and the scope of the supervision -- how many banks should fall under its control.

However, the source sought to dampen expectations for a summit of EU leaders starting on Thursday that was supposed to improve the framework of the eurozone after its crippling debt crisis laid bare serious construction faults.

"This European council will define the work for the next weeks and months, rather than take fundamental decisions," the source said.

European leaders have been busy with sorting out the mess in Greece as well as scrapping over the bloc's next seven-year budget, meaning there has been insufficient time to concentrate on the bigger picture.

"We must look honestly at how intense and full the European agenda between the end of August and the beginning of December was," the official said.