France's President Francois Hollande and German Chancellor Angela Merkel agree on the need for a clear and tight timeframe to build a European banking union, a French government source said on Thursday.

The source had been briefed on talks between the two leaders before a summit of European Union heads of state and government in Brussels.

"It was a discussion to check on the positions and see if we can reach a deal, and I think that's the case... We'll see how talks will go, but a deal is likely," the source said on condition of anonymity.

"There is the idea of a statement identifying clear objectives in terms of timing for a banking union... by the end of the year. There will be different steps but the idea is to have by the next summit the structures, the positioning of the (banking) supervisor, the basic architecture of banking supervision being clearly and precisely defined."

The source also said Hollande discussed with Merkel, and earlier with Italian Prime Minister Mario Monti, the situation in Spain and Greece. (Reporting by Julien Toyer; editing by Rex Merrifield)