By Stephen Brown
BERLIN, May 7 (Reuters) - 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 using current law without seeking treaty changes.
The banking union is critical to Europe's efforts to overcome a sovereign debt crisis complicated by the problems of euro zone banks. A first step involves creating a Europe-wide banking supervisor under the European Central Bank, to be followed by a 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'.
IMF chief Christine Lagarde emphasised the need for EU countries to be in agreement. 'You need to have all the players at the table,' Lagarde, managing director of the International Monetary Fund, told students at the University of Amsterdam when asked about Germany's concerns.
Schaeuble said that while Europe needed institutional changes in the medium term, it should not wait 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 previously emphasised caution and careful preparation in the drive for a banking union, fearing its citizens might wind up picking up much of the liabilities.
In Paris, President Francois Hollande welcomed Schaeuble's comments. 'It is absolutely essential that we can have the banking union without changing treaties - that has always been France's position,' he said.
Moscovici told a later news conference in Berlin that the EU should aim to make 'decisive progress' by the end of June on the banking union.
FRANCE URGES FLEXIBILITY
German Chancellor Angela Merkel has insisted on austerity measures to cut the euro zone's public debt and overcome the crisis, but Moscovici urged Berlin to show more understanding for the plight of struggling southern countries.
'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.
Last week, the 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 record jobless numbers.
Moscovici said countries had to reduce their public debt but at an appropriate pace. 'We will continue our efforts to tackle the structural (budget) deficit,' he said. 'France is a serious country conducting a credible policy, we do not renounce (fiscal responsibility).'
Some experts have also suggested higher German wages would encourage workers to spend more on goods and services in other euro countries, but the heads of both the German and French central banks cautioned against any steps that might undermine German competitiveness.
'It's not about reducing Germany's competitiveness versus the other countries, who would not benefit from it either. Weakening Germany would just weaken the whole euro zone,' Bundesbank chief Jens Weidmann told the news conference with Schaeuble, Moscovici and French central banker Christian Noyer.
Echoing his comment, Noyer said: 'The issue is not, and cannot be, about reducing Germany's performance and its export capacity. It is about raising the euro zone's overall performance with respect to the rest of the world.'
'It clearly requires competitiveness reforms in all countries,' Noyer added.
(Additional reporting by Annika Breidthardt, Gareth Jones and Sarah Marsh in Berlin and Julien Ponthus in Paris, Writing by Gareth Jones, Editing by Noah Barkin/Ruth Pitchford) Keywords: EUROZONE GERMANY/FRANCE
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