EU finance ministers are due to hold final talks on a banking union as they seek to revive a stalled integration plan that would tightly bind the economies of eurozone countries.
Ministers will discuss proposals for a system to secure depositors’ funds across the bloc on Tuesday at a meeting called by Eurogroup President Paschal Donohue.
Irish Finance Minister Donohue said the European Union may never reach a deal if it fails to reach an agreement in the latest round of talks.
A banking union would effectively allow customers in one EU country to use a lender based in another for their main account without disruption.
It would take control of banking policy away from individual nations and put it in the hands of Brussels, a long-held aspiration of the bloc’s elite.
However, critics fear the plans are fraught with risk if something goes wrong and would put depositors’ money across the eurozone at risk in the event of a downturn in one country.
Efforts to finalize the banking union could be hampered by longstanding disagreements among bloc members.
The German government has been reluctant to sign an arrangement that could expose its taxpayers to weaknesses in Italy’s financial system.
Italian banks have strengthened their balance sheets since the eurozone crisis through mergers and capital increases, but regulators are still concerned about some lenders.
Dutch bank ABN Amro said last year that the Italian banking sector remained “the main risk for all European banks”.
The Italian banking system also has to deal with the fallout from the Ukrainian invasion. Unicredit has said it could take a €7.4bn (£6.2bn) hit if it were to cancel operations in Russia entirely.
A banking source said: “At the end of the day, the German government has to decide whether they are going to accept a risk that they didn’t have before because of the details of the union.
“Those with the most creditworthiness, those with the strongest national arrangements are going to be caught off guard.”
In an interview last month, Mr Donohue told Financial News: “If we can’t get an agreement on this plan now, it’s not clear to me when we might get it in the near future. coming.”
Unicredit chief executive Andrea Orcel recently pushed for a banking union in an opinion piece for German financial newspaper Handelsblatt.
Mr Orcel said the war in Ukraine demonstrated the need for “free movement of capital in the euro area”.