EU commission gears up for banking union legislation

However, with Britain and other non-eurozone countries likely to opt-out of the system, the union is expected to focus on the single currency areas.

At a news briefing in Brussels, Commission spokeswoman Pia Hansen confirmed that "the banking union will be for the seventeen," although she added that it would be open to non-eurozone countries. There would be "an interface for those who would like to join that supervisory mechanism," she said.

The banking union launch had been pencilled in for 11 September but has now been pushed back by a day, allowing Barroso to unveil the plans in his annual State of the Union speech to the European Parliament in Strasbourg.

Tentative agreement  on establishing a federal banking union was reached at the June EU summit, as political leaders seek to break the link between Europe's debt-laden banks and sovereigns. In June Spain was forced to request a bail-out package of up to €100billion to prop up its domestic banks which accumulated bad debts totalling an estimated €60 billion after the collapse of the country's property market. Meanwhile, high street banks in Germany and France are exposed to billions of euros in crisis-hit Italy, Greece and Ireland.

However, the passage of the legislation is far from clear. Germany's Angela Merkel has come under domestic pressure from her own CDU party and from Jens Wiedmann, the President of the Bundesbank, to block an expansion of powers for the ECB. On Monday (27 August) Wiedmann attacked the ECB's bond-buying programme, telling Der Spiegal that it amounted to "state financing via the printing press". Fellow Bundesbank executive member Andrea Dombret insisted that giving supervisory powers to the ECB would create "conflicts of interest."

Despite this, Merkel is expected to support centralised oversight control of the banking sector before allowing the EU bail-out fund, the European Stability Mechanism, to directly refinance weak banks. While the ECB is expected to be given the "prudential  supervision" powers included in the EU treaty, the London-based European Banking Authority is expected to keep its role of monitoring the compliance of European banks with EU financial regulation.

The Commission chief also revealed plans to overhaul the EU's Single Market legislation commenting that the Commission would prepare a "Single Market 2" in the coming weeks. Barroso said that the reforms would "build on the momentum" of the twelve bills making up the Single Market Act, currently being discussed by MEPs and governments.