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Fresh push needed on deeper euro zone integration: EU executive

By Jan Strupczewski

BRUSSELS (Reuters) - European governments should make a fresh push for deeper euro zone integration, especially on a bank deposit guarantee scheme where almost no progress has been made, the European Commission said on Wednesday.

The call from the EU's executive arm comes as European Union finance ministers are to meet in Luxembourg on Thursday and Friday to sort out outstanding deeper integration ideas such as the deposit guarantee scheme (EDIS) and a euro zone budget.

The ministers will also try to agree on legal changes to the euro zone bailout fund so that it can lend to a bank-financed resolution fund, and push forward plans for an EU capital markets union. The results are to be debated at an EU summit of leaders on June 20-21.

Even though a year has passed since EU leaders instructed finance ministers to reach deals on the various strands of deeper economic integration, none have been agreed in full.

"Willingness to act has waned as the economy has improved," European Commission Vice President Valdis Dombrovskis told a news conference. "There is a saying that the European Union has been built through crisis. But it does not have to be so."

Officials said the talks in Luxembourg were likely to be very long and difficult.

Euro zone governments have yet to agree on how a future budget for the 19 countries sharing the euro should be financed and what size it might be.

France wants a substantial budget funded from dedicated taxes such as on financial transactions, digital companies or plastic, and used to stabilize the euro zone in a crisis.

The Netherlands and other northern European countries, including Germany, oppose that to varying degrees, keen for a small budget linked to the existing EU budget and used only for investment or structural reforms.

Senior euro zone officials said the compromise was likely to envisage a development of the budget over time.

"It will not be the big bazooka, it will start small and grow large," one senior official involved in the talks said.

The deposit insurance guarantee scheme has been the toughest to agree. Germany is concerned that, if introduced now, it could mean German savers bailing out Italian depositors over a banking crisis there.

Berlin and its allies have insisted that euro zone banks, especially in Italy, Greece and Portugal, should first have to cut legacy risks still on their books after the sovereign debt crisis of 2010-2015.

"Regrettably, the impasse on this project is still there. No tangible progress has been made," Dombrovskis said, noting bad loans in banks -- a measure of the legacy risks -- had fallen sharply.

(Reporting By Jan Strupczewski; editing by Philip Blenkinsop and Toby Chopra)

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