(Adds ECB, final news conference)
BRUSSELS, March 12 (Reuters) - Euro zone finance ministers failed to make a breakthrough on Monday on an EU-wide deposit guarantee scheme, even though the European Central Bank said risks for banks have already been reduced enoug.
The ministers discussed deeper integration of their economies, focusing on a banking union and the transformation of the European Stability Mechanism bailout fund into a European Monetary Fund.
One element still missing from an EU banking union is deposit insurance for the entire euro zone, which would bolster the confidence of savers and protect deposits of up to 100,000 euros in any euro zone bank.
Germany, Denmark, Estonia, Finland, Ireland, Latvia, Lithuania, the Netherlands and Sweden say euro zone banks must first reduce exposure to risks before the project can start. Technical work before the meeting was still under way to agree on a common way of measuring if risks have fallen enough.
But European Central Bank President Mario Draghi was reported as telling the ministers during the meeting that conditions for the guarantees already existed.
"Significant and sufficient risk reduction has been achieved to allow the opening of negotiations to move to the first phase of EDIS," an EU official reported Draghi as saying.
Under proposals put forward by the European Commission in October, a common deposit insurance scheme would come into play only after national schemes had spent all the money available to pay depositors of a failed bank.
EDIS READY FOR FIRST PHASE
In its first phase, the European Deposit Insurance Scheme (EDIS) would lend to national insurers only enough to cover 30 percent of their losses. That would increase in stages to 90 percent from 2021.
A second phase would see EDIS directly cover depositor losses, but only in part, with national insurance schemes continuing to bear the brunt of any banking crisis.
But after five bailouts for mainly southern European governments during the sovereign debt crisis, the issue is politically charged. Trust in the soundness of each others' banks across Europe is still low.
Politicians are wary of EDIS even though the head of the bailout fund, Klaus Regling, said that had the euro zone had such a scheme during the crisis, all bailouts would have been smaller because they would not need to include money to stabilise banks.
"I don't think we will have a common approach on this tomorrow as there are still too many unsolved questions," Germany's interim finance minister, Peter Altmaier, told reporters before the meeting.
"We can only make progress if in those countries where there are many bad loans and many unsolved issues remain, the risk of a new banking crisis is reduced," he added.
The talks on Monday were to help prepare a euro zone summit on deeper economic integration scheduled for March 23. Leaders plan to take key political decisions on the future shape of the euro zone in June. Banking union is their priority.
French Finance Minister Bruno Le Maire said the rise of eurosceptic parties in Italy and the threat of a global trade war made deeper integration all the more necessary.
Other issues linked to the completion of the banking union include how banks should provide for bad loans and whether to set limits on their holdings of securities of a single government, to make national banking systems less dependent on the fiscal stability of their governments. (Additional reporting by Robert-Jan Bartunek; Writing by Jan Strupczewski, editing by Larry King)