Pessimism surrounds EU bank union prospects -Reuters poll
* EU unlikely to agree meaningful bank reform deal before year-end
* Economists also say peripheral yields unlikely to hit danger zone
* ECB to hold interest rates for foreseeable future
LONDON, June 26 (Reuters) - European leaders are unlikely to agree a meaningful deal to achieve a banking union before the end of the year, according to a slim majority of economists polled by Reuters this week.
The economists also saw no change in the European Central Bank's monetary policy stance at next week's meeting.
Finance ministers from the European Union's 27 countries meet on Wednesday for more talks on how they will regulate banks and share the cost of future bank failures.
Although seen as a necessary step in putting the region back on a sound economic footing, 28 out of 49 economists were pessimistic that politicians will agree concrete measures on achieving a banking union before the end of the year.
However, they were more confident the euro zone's sovereign debt crisis won't escalate again to the intensity of last year, despite an increase in borrowing costs over the last month for debt-burdened euro zone countries such as Spain and Italy.
Only 16 out of 47 economists thought borrowing costs in these countries will head back into the danger zone soon, which in the recent past has been defined as a 10-year government bond yield surpassing 7 percent for a sustained period.
For now, the biggest question was the reform of Europe's sclerotic banking system.
"We will probably have some kind of an agenda for the future but whether there will be a deal that is sufficiently strong on detail to convince investors remains to be seen," said Elwin de Groot, senior market economist at Rabobank in Amsterdam.
There were 21 analysts who thought leaders would strike a deal, although perhaps not for a few months.
"After the general election in Germany in September, the country may be more willing to compromise in discussion about a resolution fund and a single deposit guarantee scheme," said Tomas Holinka, economist at Moody's Analytics.
Asked what the minimum governments would need to achieve on a banking union in order to convince investors, the most common response was a single supervisory mechanism and credible means of resolving bank failures.
"A resolution mechanism has to make sure that deposits are safe and bank failures do not lead to excessive government debt," said Kristian Toedtmann, senior economist at DekaBank in Frankfurt. "Both together is only conceivable with a high degree of risk sharing."
France is arguing that the new EU rules should allow countries more leeway to decide how banks' creditors are dealt with. Germany is pushing for stricter rules in which everyone has to follow an agreed, EU standard.
The wider monthly poll of more than 60 analysts showed the European Central Bank will likely keep its main refinancing and deposit rates on hold at their record lows until at least the end of next year, unchanged from previous surveys.
While analysts do not expect the ECB will be pressed into further action because of a spike in euro zone borrowing costs, there was a strong note of caution in responses.
"It is not our main scenario, but in thin and nervous summer markets, a fear-driven spike in sovereign spreads seems to be a very real risk," said Frank Hensen, senior economist at Danske Bank.
Asked what the ECB can do to prevent that, the most common answer was that it could activate the Outright Monetary Transactions (OMT) programme, in which it could buy the bonds of troubled euro zone countries.
"Because of the existence of the OMT, yields are unlikely to rise to unsustainable levels. At 5 percent for 10-year bonds now, neither Italy nor Spain are in danger," said Christian Schulz, senior economist at Berenberg Bank.
(Polling by Rahul Karunakar and Hari Kishan; Editing by Jeremy Gaunt)