Germany, the EU's biggest economy and paymaster, appeared ready to budge on using the eurozone's rescue funds more flexibly to help banks and reassure investors spooked by an increased risk of facing write-downs on government bonds.
The parties in Merkel's centre-right coalition proposed allowing a new permanent rescue fund, known as the European Stability Mechanism (ESM), to funnel aid directly to national bank rescue funds. That could spare governments like Spain's some of the political stigma of a bailout, although the loans would still be on the state's balance sheet, increasing its debt, and would still be subject to strict conditions.
Neither Merkel nor Finance Minister Wolfgang Schäuble, who insisted on that treaty clause to make private bondholders take first losses in any future debt restructuring by bailed-out states, spoke out in favour of such a move.
Investors want to see bold moves to underpin the European currency union and halt the inexorable contagion from one debt-stricken country to another. But with 27 EU countries and 17 in the eurozone, quick steps are one thing Europe can't take.
The Brussels summit is expected to agree on a growth package pushed by France worth around €130 billion in infrastructure project bonds, reallocated regional aid funds and European Investment Bank loans.
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