(c) 2013, Bloomberg News.

(c) 2013, Bloomberg News.

BRUSSELS The European Union is preparing for an internal battle over plans to centralize the shuttering or restructuring of failing banks, as Germany renewed warnings that the bloc must restrain its ambitions if it is to adopt the measures without treaty changes.

EU divisions over the plans were laid bare a day before the European Commission releases its proposal for the single resolution mechanism. German Finance Minister Wolfgang Schaeuble told other EU nations that he would be vigilant in policing the bloc's legal limits as it moves forward with the plan, which supporters say is an essential accompaniment to European Central Bank oversight of euro-area lenders.

"I would strongly ask the commission in its proposal for an SRM to be very careful, and to stick to the limited interpretation of the given treaty," Schaeuble said at an EU finance ministers' meeting Tuesday in Brussels. "We have to stick to the given legal basis, as otherwise we risk major turbulence."

EU leaders last month reiterated their support for setting up the SRM, without specifying how it should work. A draft outline of the EU plans, seen by Bloomberg News, would hand final decision-making powers to the commission, and would also involve the establishment of a cross-border resolution fund financed by the banking industry.

Both the commission and the ECB have urged rapid progress toward a centralized system to bolster confidence in the bloc's banks and break the financial link between lenders and sovereigns. The project has also received support from other euro nations including France and Italy.

France would like nations to reach a deal on the law "by the end of the year," Finance Minister Pierre Moscovici said Tuesday. The bloc "has to complete" the banking union, he said.

The proposals, which will target the euro area and other nations that sign up for ECB supervision, require approval by governments and the European Parliament before they take effect.

European Union Economic and Monetary Affairs Commissioner Olli Rehn said Tuesday that the proposal "will certainly be in line" with EU treaties.

Germany has repeatedly urged the EU to embark on treaty changes to ease its path to banking union, arguing that the bloc's current rulebook limits the powers that can be handed to newly created authorities. Other nations have rejected that approach, warning that it would cause unacceptable delays.

The German government has sought to build support behind an alternative blueprint for a network of national resolution authorities.

Nations are split over how far EU-level measures should be taken to break the bank-sovereign link. Governments in the strongest fiscal position have argued that responsibility needs to fall mainly on national shoulders, with limited access to common backstops, while also trying to reassure investors that the euro area will preserve financial stability.

The haggling is a far cry from 2008, when banks in the biggest European countries, as well as the United States, required bailouts following the collapse of Lehman Brothers Holdings.

In a single day, Oct. 13, 2008, France, Germany, Spain, the Netherlands and Austria committed 1.3 trillion euros ($1.7 trillion) to guarantee bank loans and take stakes in lenders.

The Dutch government still owns ABN Amro Group and only this year took over SNS Reaal. Germany established a 500 billion-euro fund to guarantee bank debt. Taxpayers extended aid to Commerzbank, Bayerische Landesbank, HSH Nordbank, Hypo Real Estate Holding, IKB Deutsche Industriebank and WestLB.

Michael Meister, the deputy caucus leader of Chancellor Angela Merkel's party in the German parliament, said earlier this month that lawmakers would resist any attempt to set up a common bank resolution fund.

_ With assistance from Rainer Buergin in Berlin.

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