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OSLO (Reuters) - European Union leaders are likely to give political backing for the European Central Bank to be made the single supervisor of euro zone banks later this week, EU officials said on Monday, even if the final details may not be agreed until next year.
Leaders meet in Brussels on Thursday and Friday for their last summit of the year, with the focus on setting up a 'banking union' across the euro zone and wider EU, a plan built around the ECB taking lead responsibility for banking oversight.
Herman Van Rompuy, the president of the European Council who will chair the December 13-14 summit, said he was hopeful that leaders would give their backing to the scheme, and EU officials speaking on condition of anonymity said they expected "political agreement" at the summit with the details worked out later.
"I still hope and I'm quite sure that we'll find a solution on the legal framework before Christmas, before the end of the year," Van Rompuy told reporters in Oslo, where he received the Nobel Peace Prize on behalf of the European Union.
"There's work to be done, but I have a lot of indications that there is the political will to find a solution for the single supervisory mechanism."
Twenty EU heads of state and government were in Oslo to attend the Nobel prize giving and took the opportunity to discuss the economic crisis over lunch, officials said.
German Chancellor Angela Merkel emerged from those talks saying she felt "more courageous" about tackling the problems EU governments face, but didn't go into details.
Germany is one of the main obstacles to a deal on the ECB taking responsibility for monitoring the euro zone's banks.
German Finance Minister Wolfgang Schaeuble last week raised concerns about how the ECB, which is based in Frankfurt, could balance its monetary policy responsibilities with overseeing up to 6,000 banks, a detailed and time-consuming task.
Germany's regional banks and savings institutions are also reluctant to be regulated by an 'external' authority rather than Germany's own banking regulator, with which they work closely.
At a summit in June and again in October, EU leaders said they were committed to getting the legal framework for the single supervisory authority completed by the end of 2012 so that the ECB could gradually take responsibility for banks through the course of next year.
The aim was the complete the supervision process in a year, with the goal of the ECB being fully in charge by January 1, 2014, at which point it would be possible for troubled banks to be directly recapitalized from the euro zone's rescue fund.
If leaders give political backing to the plan at the summit, it will still take time for the European Parliament to give its assent and for other legal steps to be taken, meaning that realistically the process will not be complete until early 2013 even if the sign off has been given by leaders.
Jose Manuel Barroso, the president of the European Commission, the EU's executive, said EU leaders couldn't afford to procrastinate and said he hoped they would back the Commission's banking union proposal this week.
"I'm urging governments to agree on the basis of the European Commission proposal for the banking union, the first step being precisely this single supervisory mechanism," he told Reuters ahead of the Nobel prize giving ceremony.
"There is a risk that because of the relatively calmer situation in the markets we have been feeling the last months there is probably less sense of urgency in some capitals.
"I don't like to comment on timings, sometimes the most important is the sense direction... The critical element is for investors to have no doubt about the determination in the euro area to do what is necessary to protect financial stability."
Writing by Luke Baker; additional reporting by Balazs Koranyi; editing by Ron Askew