Europe’s two biggest economies clashed over awarding the power to close failing banks, with Germany saying the onus must be on national governments and France opting to give the final say to the European Commission.

The disagreement broke into the open for the first time during a conference on banking union in Berlin at which German Deputy Finance Minister Thomas Steffen and French Treasury chief Ramon Fernandez outlined their opposing stances.

The proposed resolution authority, along with European Central Bank oversight of euro-area lenders, form the core of a banking union that is intended to sever the link between bank and sovereign debt. While European policymakers agree on the need for a banking union after the crisis that began in Greece four years ago, they are divided on the means of achieving it. Finance Ministers are due to deliberate the matter next week.

The “basic decision” on closing a failing bank would be taken by the board of national authorities, though the formal decision should be taken “not by the commission but the council” of the European Union, Steffen said, citing a “conflict of interest” with the commission.

Fernandez said that the decision on resolution can either be legally invested with the EU commission or with the council, which represents member states’ governments. “We think it would be more rational to be the commission,” he said.

Chancellor Angela Merkel’s government has led opposition to a proposal from Michel Barnier, the EU’s financial-services chief, for a Single Resolution Mechanism to handle euro-area bank failures, claiming the plan is on shaky legal ground and could endanger national control of budgets.

Barnier Plan

Barnier’s plan gives the final say on bank closures to the Brussels-based European Commission, the EU’s executive and regulatory arm. Germany and other countries reject this arrangement, citing potential conflicts of interest for the commission.

Fernandez signaled the potential for compromise, saying that giving the resolution power to the council “is possible.”

“Honestly, this is not the most critical point,” he said.

Dutch Finance Minister Jeroen Dijsselbloem, who chairs meetings of euro-area finance chiefs, said yesterday that he’d be prepared to discuss the German proposal.

“The Netherlands prefers that the commission do this,” Dijsselbloem told reporters in The Hague. “But we can certainly discuss having the Council of the European Union do this on the condition that decisions could be made quickly and effectively. It musn’t be politicized or lead to delays, because resolution decisions must be made quickly.”

Fernandez also made clear that “the scope of the resolution mechanism” is still under discussion, saying “it should cover all banks.”

Steffen proposed a system of voting dependent upon whether public money is involved. If taxpayer funds are needed, that “needs to be approved by the member state,” he said.