Germany warns that direct aid for banks would require law change

LUXEMBOURG (Reuters) - German law would need to be changed before the euro zone's rescue fund could provide aid directly to banks, the country's finance minister said on Tuesday, raising another obstacle to joint support for dealing with failing lenders.

"The retroactive bank recapitalisation is not probable for the time being," Wolfgang Schaeuble told reporters at a meeting of European Union finance ministers. "In Germany, we need a change of German legislation," he said, adding that such a step could be "as difficult as a referendum in Ireland."

Europe's finance ministers are striving to agree the next big step in European integration by setting up a banking framework chiefly for the euro zone that would not only police the bloc's banks but find joint solutions to their problems.

Tests by the European Central Bank, ahead of it taking on supervision next year, are likely to uncover problems at banks.

But Schaeuble's comments dampen hope that the euro zone's rescue fund, the European Stability Mechanism, will help banks directly without making their home governments responsible for repaying the aid.

Schaeuble also played down the prospect of further assistance for Ireland, which is due to complete a three-year international bailout programme at the end of this year.

"I don't see any necessity for this," he said. "We think Ireland is doing very well. Ireland did what Ireland had to do and now everything is fine," he said.

(Reporting By John O'Donnell; editing by Robin Emmott)