EU calls for euro banking union, bank recapitalization

By REUTERS
May 30, 2012 14:33

 
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BRUSSELS - The euro zone should move to a banking union and consider directly recapitalizing banks from its permanent bailout fund, the European Commission said on Wednesday in annual economic recommendations that shone a critical light on Spain.

The call, in documents outlining the economic strategy for the euro zone, would appear to directly address market concerns about problems in the Spanish banking sector and the cost to the Spanish government of rescuing its banks - a factor that has driven Spain's borrowing costs to near unsustainable levels.

European stock markets pared losses and the euro jumped on the back of the recommendations, even though they are not formal proposals, face serious opposition from some member states and remain a long way from implementation.

Investors are worried that public finances in Spain, which is already struggling to cut it large budget deficit at a time of recession, will become unsustainable if it is forced to bail out is banks, after a real-estate market boom turned to collapse and left nearly all banks laden with bad property loans.

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