Germany and France are lining up on opposite sides of the proposal to create a single banking authority with the power to pull the plug on failing banks.

German officials have voiced displeasure with the idea being pursued by the European Commission, while their French counterparts have welcomed the move.

At issue is the so-called Single Resolution Mechanism, a key provision of the proposed EU-wide banking union to be created under the European Central Bank. Under the proposal, a new agency called the Single Resolution Board could recommend when to wind down failing banks. The European Commission could, either upon the board's recommendation or on its own initiative, decide when to place a failing bank into resolution and lay out the resolution's framework. Details are being refined between the commission and the European Council, with the goal of reaching an agreement before the end of the year. Lawmakers hope the measure could take effect in January 2015, along with the broader Bank Recovery and Resolution Directive.

Internal markets Commissioner Michel Barnier officially presented the plan in Brussels last week.

German Chancellor Angela Merkel has long been a critic of the Banking Union. A day after Barnier's presentation, German Finance Minister Wolfgang Schaeuble sent Barnier a letter complaining about the resolution mechanism. The letter, reported by Reuters, said the mechanism placed too much power with Brussels.

“The proposal published by the Commission regrettably envisages too high a degree of centralisation with regard to the boundaries of the existing law,” the letter stated. “The proposal does not match the current legal, political, and economic realities and would create major risks.”

Schaeuble also suggested such a move would require EU treaty changes.  

France, however, is siding with the commissioners.

French Finance Minister Pierre Moscovici said the resolution mechanism would be a pillar in the new banking union. “Now we have to work out the details of the mechanism for resolving bank crises within the euro zone, which requires the capacity to respond quickly,” Moscovici said in a statement.

Barnier has responded that treaty changes would be unnecessary and take too much time. He told reporters last week that action was needed now. But he added that there may be room for negotiation, including possibly exempting smaller banks that do not engage in cross-border banks.

“It's not that the Commission wants to have a big role in the resolution process – if someone would find and suggest to us a better solution we would be happy to look at it,” Barnier was quoted as saying in New York Times.

In introducing the measure last week, Barnier stressed the importance of having a quick and effective process to deal with failing banks.

“We have seen how bank crises can quickly spread across borders, sending confidence into a downward spiral throughout the euro area,” Barnier said in a statement. “We have also seen how the collapse of a major cross-border bank can lead to a complex and confusing situation.”

European Commission President Jose Manuel Barroso echoed the need for a strong, integrated system. “We cannot eliminate the risk of future bank failures, but with the Single Resolution Mechanism and the Resolution Fund it should be banks themselves – and not European taxpayers – who should shoulder the burden of losses in the future.”

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