19 October 2012

Reuters: Merkel raises new hurdles on EU bank union

German Chancellor Angela Merkel raised new hurdles to using the eurozone's rescue fund to inject capital directly into ailing banks from next year, dashing Spain's hopes of soon removing the cost from its strained national debt.

Merkel's move limited the impact of a key decision by European Union leaders struggling to overcome a three-year-old debt crisis in the 17-nation currency area -- an overnight agreement to establish a single banking supervisor from next year.

Spanish Prime Minister Mariano Rajoy, who received a eurozone pledge in June of up to €100 billion to recapitalise a banking sector hit by a burst real estate bubble, said he had still had not decided whether to request a sovereign bailout.

EU leaders agreed at a two-day summit that the European Central Bank will take responsibility for overseeing eurozone banks from next year, but Merkel said it would take time for the new supervisor to be fully effective. She made clear that would not lead to the bloc's European Stability Mechanism (ESM) rescue fund taking over liability from Member States such as Spain for past bank rescues, and she posed extra conditions that some diplomats said seemed designed to ensure there will be no capital injections before next September's German elections.

Berlin has been reluctant to see its politically sensitive savings and cooperative banks come under outside supervision. It rejects any system under which Germany or its banks might have to underwrite troubled lenders in poorer states.

Mr Hollande said the leaders did not discuss possible aid for Spain, another critical issue in resolving the crisis, but he laid out a series of steps that could help turn a corner.

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