Commission urges banking union, bank recapitalisation

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

The call, in documents outlining the economic strategy for the eurozone, would appear directly to 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.