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Berlin: German finance minister Wolfgang Schaeuble signalled a softening of his stance on a European banking union on Tuesday, saying the euro zone should press ahead on the basis of current law without waiting for a controversial overhaul of the EU’s Lisbon treaty.

The banking union is a crucial part of Europe’s drive to overcome its financial and sovereign debt crisis. In a first step, it involves the creation of a Europe-wide banking supervisor under the hood of the European Central Bank (ECB). This is to be followed by a so-called resolution scheme to close or salvage struggling banks.

Just last month, Schaeuble appeared to slam on the brakes by saying the European Union needed to consider treaty change before proceeding, due to the “doubtful legal basis" on which the project rested. Those comments sparked a backlash from EU officials and German partners like France.

On Tuesday however, at a Berlin university event with his French counterpart Pierre Moscovici, Schaeuble struck a more conciliatory tone, calling banking union a “priority project" and promising to press ahead with it “quickly".

He said that while Europe needed institutional changes in the medium-term, it should not wait for this to solve its current problems.

“We must make the best of it on the basis of the current treaties, and where we do not manage to achieve things institutionally, then we will work inter-governmentally or even bilaterally," he said.

Germany, which holds an election in September, has in recent months stressed the need for caution and careful preparation in the drive for a banking union, anxious about exposing its citizens to the liabilities of Europe’s weakened banking sector.

Chancellor Angela Merkel has insisted on tough austerity measures to cut the euro zone’s public debt, but France’s Moscovici urged Berlin to show more understanding for the plight of struggling southern countries.

France Urges Flexibility

“It is true that Germany is very attached traditionally to rules and discipline, which are things we need—but at the same time we have to be capable of flexibility, of understanding and of respecting our diversity," the French Socialist said.

He joked that Schaeuble “would perhaps not have spontaneously advised me to get an extension" to the French deficit goals from the European Commission, adding that his German colleague had expressed his understanding.

Last week, European Commission, the EU’s executive body, granted France—the euro zone’s second largest economy—two more years to cut its public deficit to below three percent of gross domestic product (GDP).

Unlike Germany, where the economy remains relatively robust and unemployment is near two decade lows, France has seen jobless numbers soar to record levels.

Moscovici said countries had to reduce their public debt but at an appropriate pace, adding that Paris did not see the commission’s decision as an excuse to neglect sorely needed structural reforms.

“We will continue our efforts to tackle the structural deficit," he said. “France is a serious country conducting a credible policy, we do not renounce (fiscal responsibility)."

But Moscovici stressed that the most pressing challenge for France and many of its euro zone peers was job creation.

“Of course, we have to make sure public finances are put right, but you have to carry out this exercise carefully, taking into account the national situations and defining the right rhythm for preserving growth prospects," he said. Reuters

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