European Central Bank policymaker Erkki Liikanen said on Friday that setting up a European banking union would be a long-term project and it made sense in the meantime for European states to bolster fiscal cooperation.

"This will not be ready overnight," Liikanen, a member of the ECB's Governing Council, said in a presentation to the Finnish parliament. He was referring to a proposal to give the European Central Bank powers to oversee euro zone banks.

"A credible vision and commitment, however, will increase (market) confidence in the ability to take care of problems," Liikanen, who is also governor of the Bank of Finland, said.

The European Commission has envisaged a banking union by the middle of next year.

He said it was important to set up common banking supervision, but he did not think building a fund to protect citizens' deposits across the region was urgently needed and might not even be necessary.

"I don't know whether there will be such (a cross-border fund) at all," he said.

(Reporting by Jussi Rosendahl; Editing by Susan Fenton)