GERMANY'S finance minister has called for caution as the European Union draws up plans to wind up failing banks, suggesting that the 27-country group risks losing credibility if it tries to set up a central rescue agency without changing the EU's treaties.

"We should not make promises we cannot keep," Finance Minister Wolfgang Schaeuble wrote in yesterday's Financial Times, proposing that Europe should at first rely on cooperation between national agencies.

Officials from the European Central Bank have called for the establishment of a strong central authority backed by the financial firepower of a European fund to make decisions on unwinding banks. The fund and agency are key stages in building a Europe-wide "banking union" designed to stabilize the region's financial system.

Berlin, however, has argued that setting up such an authority would require changing EU treaties - a potentially cumbersome and time-consuming process.

Europe's banking industry has been one of the main causes of the eurozone's three-year financial crisis. Spain and Ireland had to step in to rescue their banks, which almost collapsed due to toxic property investments. These rescue attempts caused the governments' debt levels to rise to dangerously high levels.

Schaeuble wrote that Germany will assess "with an open mind" a proposal to be presented next month by the European Commission, the EU's executive arm, for the creation of a mechanism to deal with failing banks. He warned existing EU treaties "do not suffice to anchor beyond doubt a new and strong central resolution authority."