Baku, December 17 (AZERTAC). Speaking at his quarterly hearing with the parliament`s economic and monetary affairs committee on Monday (17 December), Draghi said that "combined with possible direct recapitalisation of banks by the European Stability Mechanism (ESM) and an envisaged single resolution mechanism the SSM [Single Supervisory Mechanism] will go a long way towards breaking the vicious feedback loops between sovereigns and banks."

The "ECB will have supervision over all banks ... with something of the order of 130-150 banks under direct supervision," he added.

Talks between ministers and MEPs on the first planks of banking union legislation will begin on Tuesday (18 December) in a bid to agree on the legal framework early in 2013.

According to a deal struck by finance ministers in Brussels last week, the SSM will give the ECB oversight on the eurozone banking sector from March 2014. Attention is then expected to shift in 2013 towards adopting legislation to harmonise national deposit guarantee schemes and to create a bank resolution mechanism.

Draghi`s remarks came against the backdrop of fresh scepticism from Germany about the banking union plans.

A legal opinion by the Bundesbank warned that the deal agreed by ministers in Brussels last week lacked "a long-term solid legal basis."

Meanwhile, Bundesbank chief Jens Weidmann said that he was "not convinced that the ECB council is the optimal authority to decide when a bank has to be closed down or not."

Speaking at the hearing in Brussels, German Christian Democrat MEP, Werner Langen, said that ECB control over the entire eurozone banking sector is "hard to stomach" and would impinge on the role of domestic regulators.

The ECB chief also refuted claims that the bank`s supervisory role would create a conflict of interest with its decisions on monetary policy.

"The ECB`s involvement in financial supervision has no bearing whatsoever on our primary objective of price stability," he said, adding that a newly created supervisory board would have an independent chair and vice-chair.

"Banking supervision and monetary policy must be rigorously separated," he added.

Draghi painted a stark picture of the weakness of the eurozone economy, commenting that "we expect economic weakness to extend into next year with a very gradual recovery in the second half of the year."

He also called on governments to pursue structural reforms.

"Economic reforms bear fruit, even if, in the short term, the costs to individual citizens can be considerable. But the reforms are the rights path. Governments should persevere," he said, pointing to data indicating that exports of goods and services from Spain, Ireland, Italy and Portugal had recently increased by between 14 percent and 27 percent.

But for her part, Elisa Ferreira, the Socialist group spokesperson on the committee, said that the profits from the ECB`s bond-buying programmes should be pumped back into the weaker EU countries.

She also urged the ECB to back "a softer implementation" of domestic austerity regimes.