NICOSIA, Sept. 15 (Xinhua) -- Deep divisions emerged Saturday among European Union (EU) Finance Ministers wrapping up a two-day informal meeting in Cyprus on a proposal to set up a Banking Union and establish a common mechanism to oversee bank operations in eurozone member states.
The Banking Union proposal was put forward by Internal Market and Services Commissioner Michel Barnier as a first step to allow the proposed European Stability Mechanism (ESM) to directly provide financial assistance to banks.
Barnier said he expected there would be disagreements on the proposal.
Germany voiced sharp disagreement with the proposal on the grounds that it was too ambitious and could not be materialized by the end of the year.
German Finance Minister Wolfgang Schaeuble also said that handing bank control to the European Central Bank (ECB) would not be in itself sufficient for banks to directly draw money from the ESM.
He insisted that countries which have banks in trouble and wishing to draw money from the ESM must still apply for an adjustment program though the ESM.
"I don't see that there can be direct recapitalization through the European Stability Mechanism ready by Jan. 1," he said.
The ESM is expected to be launched at a meeting on Oct. 8 and be operational within a month, with an initial capacity to hand out up to 200 billion euros (262 billion U.S. dollars) before this sum is increased to 500 billion euros.
Shaeuble's remarks conflicted with statements by French Finance Minister Pierre Moscovici, who pointed out that eurozone leaders have agreed to reach a deal on the Banking Union within this year and this had to be respected.
However, Moscovisi said he did not consider the differences insurmountable and expressed confidence that a deal will be clinched before the end of the year.
"It is natural to have differences on different issues as we have agreement on others ... Both France and Germany know that if they do not reach an agreement then there can be no agreement, something which makes them try their utmost to find common ground ... I am convinced that we will get there before the end of 2012, both because it is our duty and we have to possibility to do so," Moscovisi said.
Establishing a Banking Union would involve monitoring eurozone banks by the ECB, establishing a fund to close down banks in trouble and a scheme to protect depositors' money.
Barnier said the European Commission expects that the proposal for a common mechanism to control eurozone banks could be implemented in steps starting in January, 2013.
"I know the time frame is ambitious but it is a realistic one, because time is pressing and the issues are complex," he told reporters at a joint press conference with Cypriot Finance Minister Vassos Shiarly.
Shiarly, who currently presides EU Finance Ministers meetings, said he would make every effort to set up a Banking Union as soon as possible.
The ECOFIN meeting ended on an upbeat tone on the prospects of at least one of the troubled eurozone countries. It said in a statement that it expected Portugal to return to the markets within 2013 as its adjustment program is considered to be on the right track.
Portugal was one of the five eurozone countries which applied for EU bailout, the others being Spain, Greece, Ireland and Cyprus.
ECOFIN said it expected Portugal's deficit to be below 3 percent at the end of 2014 and its sovereign debt at a sustainable level of under 124 percent of its GDP.
A revision of Portugal's bailout package and a release of the next tranche of EU funds are expected to be decided at the next ECOFIN meeting.