BRUSSELS, Dec 12: The EU finance ministers expressed confidence on Wednesday of nailing down a deal on a controversial single supervisory system for banks amid signs of an emerging French-German compromise.

Seen as key to taming the debt crisis and putting the bloc back on track, this first step in a hoped-for “banking union” agreed by the EU leaders in June could be followed by a formal accord at a two-day summit starting on Thursday, the last of the year.

The EU leaders want to tighten supervision as a condition for the bloc’s bailout fund to be able to step in and directly recapitalise banks, instead of passing rescue funds through governments which adds to their sovereign debt loads. Both Germany and France said as the talks got under way that they believed a breakthrough was possible.

“I think there is a good chance that we finish that today,” said German Finance Minister Wolfgang Schaeuble on arrival. Even if details remained to be worked out, he added: “I am confident that we find a solution on the banking supervision in time for Christmas.” ‘The parameters of a deal are there, it's within reach,” French Finance Minister Pierre Moscovici told AFP.

He said officials had “worked intensely these last few days to bring our position closer to that of Germany,” adding: “We have come together in a big way.” While German officials were unwilling to be drawn on details of the compromise, the Sueddeutsche Zeitung daily said 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 ECB would be given the power to intervene under certain conditions, the newspaper reported.

“Everybody says it doesn’t make sense to pass (the issue) on to the heads of government and their meeting tomorrow,” said Austrian Finance Minister Maria Fekter, adding that a deal could be done in “a couple of hours.” Finance Minister Anders Borg of Sweden, which along with Britain will not be joining the new regime, said he could still back an agreement but only if there was a good compromise with those countries which do join.

The key lies in the relative powers of the European Banking Authority based in London which covers all the 27 EU states and the ECB which will supervise banks in 17-nation eurozone, he said.

Britain is especially sensitive on this issue, fearing that the new system could undercut the role of the City of London financial centre whose banks have extensive operations in Europe which would come under the ECB's new remit.

Whatever the final decision, the nuts and bolts of the new cross-border banking watchdog will still need parliamentary approval in key countries such as Germany.

The single bank supervisor system was supposed to have been largely in place already but finance ministers failed last week to agree an accord, setting up a tense meeting just ahead of the EU summit.

Among other issues in the background, Germany and France found time on Wednesday to say that a Greek debt buy-back programme had passed a critical test, clearing the way for payment of urgently needed bailout funds. —AFP