The Eurozone's permanent bailout fund must be given authority to directly recapitalize the troubled banks, according to a set of proposal from the European Commission, released Wednesday.
The commission said a 'banking union' will be another step towards full economic and monetary union.
Allowing direct bank recapitalization by the European Stability Mechanism will serve as a link between banks and their national governments, the executive branch of the EU said.
Germany is likely to resist the call for this liberal use of bailout fund. The recommendations come amid escalating concerns over a possible EUR 19 billion bailout for the Spanish lender Bankia.
The ESM, the permanent bailout fund will come into operation by July.
According to the EU, Spain is experiencing very serious imbalances, which are not excessive but need to be urgently addressed. The commission also observed serious imbalances in Hungary.
"Our recommendations are tailored for each Member State, but form part of a coherent approach to rebalancing the European economy," President José Manuel Barroso said.
The commission also favored issuance of common bonds, which again is likely to meet stiff opposition from Germany.
by RTT Staff Writer
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