Internal Market Commissioner Michel Barnier on Wednesday tried to take the sting out of current controversies surrounding the European Union's plans for banking resolution.

In an interviews for Germany's business daily "Handelsblatt", he conceded the European Commission itself might act as the bloc's news banking resolution agency for only a limited time, later handing over that role to the permanent rescue fund known as the European Stability Mechanism (ESM).

Barnier thus signaled his willingness to compromise so as to bring fresh momentum to the stalled banking union project which aims to break the link between indebted countries and their banks.

Legal conundrum

"The bailout fund [ESM] could take over banking resolution as soon as it has become a European institution," Barnier said in a statement.

The commissioner said, though, a compromise had to be reached as to whether the agency would have to limit its remit to Europe's largest and systematically relevant banks as demanded by German Finance Minister Wolfgang Schäuble.

"Small banks can also go bankrupt and in doing so rock the whole system," Barnier commented.

European lawyers have raised concerns about banking union proposals in general, warning that current laws would only allow limited powers to be given to any banking resolution agency, with issues related to when exactly to close an ailing lender and who should pay the bill remaining unresolved for the time being.

In response to Barnier's suggestions, a spokesman for the German Finance Ministry said Wednesday the proposal did not do away with Berlin's misgivings, saying that even an interim solution had to stand on a sound legal footing.

hg/rc (Reuters, AFP)