Speaking after a meeting of European Union finance ministers on 13 April, Germany Finance Minister Wolfgang Schäuble said the EU's Lisbon treaty had to be changed to allow common rules on shutting troubled banks - a central element of the union.
"Banking union only makes sense ... if we also have rules for restructuring and resolving banks. But if we want European institutions for that, we will need a treaty change," he said.
Designed to ensure vulnerable countries do not have to tackle financial problems alone, the plan for banking union was one of the bloc's biggest political steps to stabilise the euro and prevent taxpayers from footing bills for bank rescues.
"We will not be able to take any steps on the basis of a doubtful legal basis," Schäuble told reporters. "That's why it's also crucial that we strengthen the network of national restructuring funds and authorities."
As a first step towards the union, the European Central Bank is set to start supervising eurozone banks from July 2014.
This should be followed by a so-called bank resolution scheme to close or salvage struggling banks as well as pay for the costs involved. The third and final step would be a coherent framework across Europe for deposit protection.
Worried the supervisory role could compromise ECB monetary policy independence, Germany on Friday persuaded EU countries to sign a political declaration committing to future treaty change.
Schäuble also made clear legal change would be necessary for the unified scheme for tackling failed banks.
Changing the Lisbon treaty, which underpins the bloc's law, would be a drawn-out process as it calls for the agreement of all member states - some of which require referenda.
It would raise particular problems for Britain, where eurosceptics have argued that the country should quit the bloc.
Schäuble has long had reservations about banking union, which would be a step towards allowing the euro zone's rescue fund to directly assist banks, a move Germany fears might leave it facing the bill for reckless lending by foreign banks.
Schäuble said the country of a bank in financial difficulty must first inject fresh capital before direct support from the European Stability Mechanism (ESM) is possible.
Spain's Finance Minister Luis de Guindos said member states would pay a minimum 4.5 percent of capital for troubled banks.
"From that point, there would be a burden sharing to converge towards 10 percent paid by the member state," de Guindos said. "This means the ESM will pay for around 90% and the member state for 10%."
Schäuble also emphasised German opposition to the creation of a joint deposit guarantee scheme.
