France and Germany, traditionally leaders in such integrationist moves, are at loggerheads over parts of the plan, and there is little time left for the EU to meet a commitment to complete the framework for banking union by the end of the year.
Critical questions remain unanswered, such as how many banks the ECB should directly supervise and whether the central bank gets longer than one year, as planned, to fully take on its role.
After three years of piecemeal crisis-fighting measures, agreeing on a banking union would lay a cornerstone of wider economic union and mark the first concerted attempt to integrate the bloc's response to problem lenders.
But reaching a deal, which EU leaders want to sign off when they meet at a summit on Thursday and Friday, will require addressing the concerns of Germany, whose support is crucial, while also satisfying France and others with deep vested interests such as Britain, Sweden and the Netherlands.
"It's not an easy one for Germany," said one diplomat, close to the talks. "But the markets are watching us."
Another diplomat said it came down to a conflict between quality and speed: For the best banking union possible to be put in place it will take time and it may be necessary to extend agreed deadlines.
Berlin is concerned that supervision will develop into a scheme under which it is left to foot the bill for European banks too weak to survive when, as is planned, a central resolution scheme is set up to close troubled lenders.
It is also worried about a potential conflict of interest between the ECB's double role as supervisor and as guardian of monetary policy. Such a conflict could arise if the ECB were to decide to keep interest rates low to prop up banks.
In a sign of the tensions last week, German Finance Minister Wolfgang Schaeuble publicly clashed with France's finance minister at a meeting intended to finalize the plan.
Schaeuble objected to the ECB's Governing Council having the final say over monitoring banks, a stance that appeared to push the talks backwards. One official from a non-euro zone country said on Tuesday Schaeuble had softened his line since.
Read more: Europe seeks to end discord over banking union | Reuters
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