The euro countries have already agreed to set up a centralized bank oversight to be anchored with the European Central Bank, legislation for which was passed by the European Parliament Thursday.
Setting up the next step to deal with bust banks the so-called single resolution mechanism is seen as crucial to completing the banking union, which analysts bill as Europe's most important initiative in turning the tide on the bloc's three-year-old debt crisis.
The banking union's goal is to make the supervision and rescue of banks the job of European institutions rather than leaving weaker member states to fend for themselves. Failing banks in the past have dragged down government finances and forced European Union countries such as Ireland or Cyprus into seeking bailouts.
Most countries including the bloc's weaker southern economies but also France are pushing for a powerful centralized authority complete with a common financial backstop to deal with bank failures. Germany and others, in turn, argue the EU's current treaties aren't a sufficient legal basis for such an authority. Instead, Berlin proposes stronger cooperation between existing national watchdogs followed by a limited change of the EU treaties something that could take years.
Critics say failure to agree could roil world markets, and the German proposal would be barely an improvement over the status quo, which has proved to be not resilient enough amid Europe's debt crisis.
ECB executive board member Joerg Asmussen insisted the legal experts of the European Commission, the Council of ministers representing the governments, and the European Central Bank agreed the current treaties were sufficient.
"This in our view is the biggest integration step in Europe since the introduction of the common currency," he said, insisting on swift progress in implementing the bloc's planned banking union.
"Now we can move on and we should move on with the second key element of the banking union."
Before it takes on its new role as banking supervisor, the ECB will carry out a very tough assessment of the banks' balance sheets.
"The importance of this exercise can be hardly overestimated," Asmussen said. "It provides an extraordinary and overdue opportunity to create transparency of bank balance sheets in Europe and is necessary to repair these bank balance sheets."
The finance ministers weren't expected to reach a decision on the next steps in the banking union yet. Still, they agreed to release a 1.5 billion euro ($2 billion) tranche for Cyprus. The eastern Mediterranean island nation was granted 10 billion euro bailout in March after being shut out of bond markets in return for radically overhauling its banking sector.
The finance ministers also urged the tiny alpine country of Slovenia, which is similarly burdened by ailing banks and is viewed by some analysts as next in line for a bailout, to push ahead with restructuring its banking sector. Slovenia insists it won't need a bailout.
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