European Commission calls for direct eurozone aid for banks in trouble

The European Commission called for direct eurozone aid for troubled banks, and touted a Europe-wide deposit-guarantee system and common bond issuance as antidotes to the debt crisis now threatening to overwhelm Spain.

The commission, the European Union’s central regulator, sided with Spain in proposing that the euro’s permanent bailout fund inject cash to banks instead of channelling the money via national governments. It also offered Spain extra time to squeeze the budget deficit.

The use of the rescue fund to recapitalise banks “might be envisaged” and would “sever the link between banks and the sovereigns,” the commission said in Brussels. Jose Barroso, the commission’s president, said “it is important to use all possibilities offered in terms of flexibility”.