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LONDON (Reuters) - National interests will have to be overcome if the European Union is to secure the next step of banking union by the end of 2013, Lithuania's central bank chief said.
The tiny nation, home to 3 million of the EU's 506 million people, assumed the EU's presidency on July 1 and will hold it until the end of the year.
Despite a compressed timetable, reservations in Germany and a looming changing of the guard in Brussels, progress can be made, Central Bank of Lithuania Governor Vitas Vasiliauskas told Reuters in a telephone interview.
Integrating Europe's disparate banking regimes into a union, with a common supervisor, common bailout rules and measures to wind down failing banks, is the presidency's main priority, as Europe battles to draw a line under a series of expensive and often chaotic taxpayer-funded bailouts.
"Overcoming national interests would be the main issue (for achieving completion by end 2013)," Vasiliauskas said. "There is a political agreement on the principles of banking union.
"I hope that all parties will keep to these principles".
Vasiliauskas said banking union was "about 50 percent" completed, with legislation pending to enable the European Central Bank to take over bank supervision and political agreement on common rules on how each country should share losses amongst creditors of its failing banks.
Proposals on a single resolution authority that would handle bank wind-downs at a pan-European level, rather than nationally, were made by the European Commission last month and will now go forward to ministers.
Agreement on sharing losses between creditors, sealed in principle between euro zone countries after late night talks in the dying days of the Irish EU presidency in June, is now the subject of technical negotiations involving Vasiliauskas' officials. It then goes before the European Parliament.
Talks have focused on the detail of what kinds of creditors can be forced to share losses, the minimum that they should contribute, and governments' tools to promote financial stability.
"We can expect that some more technical changes can be renegotiated," Vasiliauskas said. "I think, having in mind some disagreements between national interests ... flexibility for national authorities is one of the areas where you can find some compromise."
Britain, France and Sweden campaigned for more national discretion ahead of the June agreement. Germany and the Netherlands led the charge for a more harmonized approach.
Germany has also raised concerns about the European Commission's plans for a pan-European Bank Resolution Authority, the next step after common national resolution rules are adopted.
To avoid changing the EU treaty, which would be a lengthy and politically risky process, the European Commission proposed the single bank resolution authority could fall under its own control.
But Berlin believes a proper resolution authority can only be created if the EU treaty is changed.
Vasiliauskas said he was aware that German elections in September could have an impact on progress but stressed that all member states had agreed that banking union was a priority. "It is a super-EU priority," he said.
Elections in the European parliament, scheduled for next May, and a changing of the guard at the European Commission in 2014 could also make it challenging for Lithuania to hold Europe's attention long enough to secure vital agreements.
"I think it can help for pushing ... some agreements on very important issues," he said, since a shortage of time could focus minds on getting the banking union project across the line.
With a pre-Christmas lull and the summer siesta both eating into Lithuania's time at the helm, Vasiliauskas knows his team will effectively have 3-1/2 months to achieve the bulk of their work.
He rejected concerns that a country the size of Lithuania could buckle under the weight of having to achieve so much in such a short period of time.
The central bank will support the finance ministry with between 20 and 25 of its experts.
"Lithuania is not the first such small country which takes the presidency," said Vasiliauskas. "The size of the country is not only what matters."
Additional reporting by Jan Strupczweski in Brussels, editing by Mike Peacock