(Updates with further Schaeuble comments)

By Tom Fairless and Andreas Kissler

BRUSSELS--German finance minister Wolfgang Schaeuble insisted Tuesday that final liability for banks' debts should remain with national governments even after the euro zone's rescue funds are empowered to recapitalize banks directly.

"We expect that the final liability of the state will remain" even once direct recapitalizations exist, Mr. Schaeuble told journalists at a press conference here.

"The memorandum is always agreed with member states, and with no-one else," he said.

At their summit last month, EU leaders agreed to empower the bloc's rescue funds to intervene directly to recapitalize banks in an effort to break the link between sovereigns governments and banks.

"This has nothing to do with sharing liabilities," Mr. Schaeuble said.

But he said "we mustn't create higher expectations than we can fulfill."

Mr. Schaeuble said he assumes the Eurogroup won't make a decision on Greece and Cyprus before September

Write to Tom Fairless at tom.fairless@dowjones.com