Euro zone budget would not eliminate need to respect EU fiscal rules - Centeno

BRUSSELS (Reuters) - A euro zone budget would only be an additional risk sharing instrument in the euro zone, complementing private channels, and would not release governments from the obligation to respect EU budget rules, the chairman of euro zone finance ministers said.

At a hearing in the European Parliament's economic committee Mario Centeno also said a euro zone-wide bank deposit insurance scheme was necessary to complete European Union's banking union, but noted the issue was politically sensitive.

"Risk sharing in the Economic and Monetary Union will predominantly have to come from private channels," Centeno said, adding this meant a complete banking union with cross-border pan-European banks and a capital markets union.

"Nevertheless, there is a case for limited public risk sharing in the form of a common fiscal capacity, which could complement and reinforce private risk sharing," he said.

Such a budget would enable the 19 countries sharing the euro to better react to asymmetric shocks, and avoid overburdening the European Central Bank, he said.

"There are justified concerns about moral hazard. Obviously, a common fiscal capacity should not discharge countries from their obligation to conduct sound fiscal policies and respect the fiscal rules," Centeno said.

(Reporting By Jan Strupczewski)