Wednesday, May 30, 2012

The European Commission advocated direct aid from a euro zone rescue fund to recapitalize distressed banks in Spain

(Reuters) - The European Commission advocated direct aid from a euro zone rescue fund to recapitalize distressed banks in a move that could eventually help Spain, the latest front in Europe's debt wars, overcome a worsening banking crisis.

Spanish government borrowing costs earlier lurched higher and the Madrid stock market hit a nine-year low on Wednesday as investors rattled by fears about its financial sector fled to the relative haven of German bonds.

In a major economic policy document, the Commission said the vicious circle of weak banks and heavily indebted states lending to each other must be broken. While the Commission is responsible for proposing laws, it is the member states, most notably Germany and France, that decide whether or not to implement those proposals.

Commission President Jose Manuel Barroso told a news conference that tighter euro zone integration could include a banking union, a joint bank deposit guarantee scheme and euro area financial supervision, saying the mood had changed since member states only months ago unanimously rejected a joint deposit guarantee fund. Read More