* Euro zone ministers tackle scheme for failed banks
* Deep differences between Germany and France
* Germany's Merkel says banking union important for euro
BRUSSELS, Dec 17 (Reuters) - Euro zone finance ministers started tense talks on Tuesday to agree the details of one of their most ambitious financial reforms yet with a scheme to close banks, a deeply divisive issue on which Germany has dug in its heels.
More than five years into a financial storm that toppled banks and dragged down states from Ireland to Spain, Europe wants to seal its biggest project since the euro - a framework to police banks and tackle their problems together.
As ministers gathered in Brussels, German Chancellor Angela Merkel underscored the importance of the negotiations to complete banking union - of which agreement on how to close bad banks are a key part - and said she hoped they would reach a deal before she and other EU leaders meet on Thursday.
"For the acceptance of the euro on financial markets, the banking union is very important," Merkel said.
That gives ministers 36 hours to clinch agreement on an agency and fund to shut weak banks to complement European Central Bank supervision of the sector if European Union leaders are to sign off on it this week.
But discussions over a banking union have already dragged on for the best part of a year and are growing ever more complex as they reach their climax.
Wolfgang Schaeuble, Germany's finance minister, sounded a downbeat note before the meeting, saying there was no consensus. "The work remains difficult," he told reporters. "We have different opinions on several points."
The sense of urgency was highlighted by Dutch Finance Minister Jeroen Dijsselbloem, who chairs the meetings of euro zone finance ministers. "We have to get a result," he said.
Olli Rehn, the European economic commissioner who is at the talks, called for everyone to redouble their efforts in order to have "Christmas peace".
Ministers have already agreed on the first plank of banking union, making the European Central Bank supervisor of the region's largest banks from the end of 2014.
But the second pillar - an agency for winding up problem banks and a fund to pay for the clean-up - is difficult.
Germany, the euro zone's largest economy, has raised the greatest concerns about the fund, which it fears is a step towards sharing the costs of problem banks across the euro zone.
With divisions running deep, ministers may sidestep this thorny issue so as to reach a general political agreement and stick to an ambitious timetable for the banking union project to start in 2015.
There is also a question mark over the new procedure for closing a bank. Documents circulating among diplomats and seen by Reuters show an increasingly complicated structure emerging.
"The proposal on governance looks very complicated," said Michael Noonan, finance minister for Ireland, which saw its economy almost collapse after its banking crisis.
"In resolving a bank, one would want to be able to do it over a single weekend at the maximum. So anything that is too cumbersome, with various layers to it, won't be effective."
A general agreement among the ministers is all that is needed to start negotiations with the European parliament on the legislation.
On Wednesday, ministers from the wider EU will join the group to discuss who will have the power to close down a laggard bank in the euro zone. On Tuesday, the talks are focusing on who pays.
Under draft plans, banks will provide the cash to pay for the closure of failed lenders, giving roughly 55 billion euros ($76 billion) over 10 years.
But ministers cannot yet agree how to ensure there is enough money to deal with closures while the fund is being built up or where it falls short.
Germany wants the government of the country where the bank is based to provide the missing cash, or borrow it from the euro zone's bailout fund, the 500-billion-euro European Stability Mechanism (ESM), as Spain did in 2012.
But France worries that would conserve the vicious circle of weak governments trying to support weak banks, the very link the euro zone has said it wants to break via a banking union.
Many policymakers want the ESM to act as a back-up, taking on some of the costs of cleaning up a bank closure, but Germany is opposed.