Bundesbank Questions EU Banking Union

Under the deal, banks with more than EUR 30 B in assets will be placed under the oversight of the European Central Bank. Photo by EPA/BGNES

Germany's central bank has raised serious concerns about the legal framework for creating a banking union in Europe.

Lawyers working for the Bundesbank believe the project lacks a 'sustainably sound legal basis', according to Germany's Der Spiegel magazine.

The comments pour cold water on last week's jubilation when European finance ministers agreed to give the European Central Bank powers to police at least 150 EU banks.

The deal followed months of strained negotiations between member states and the new  rules on prudent banking are seen as vital to bolster the euro, as bank failures triggered the financial crash.

Under the deal, banks with more than EUR 30 B in assets will be placed under the oversight of the European Central Bank.

The deal gives the ECB powers to close down eurozone banks that don't follow rules. It also paves the way for eurozone rescue funds to come to the aid of struggling banks.

EU leaders believe that the first stage of a banking union - a Single Supervisory Mechanism (SSM) - can be put into place without having to change EU treaties.

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