The EU is in a political bind as it looks into the unprecedented step of slapping sanctions against Spain and Portugal for breaching budget-deficit limits.

Europe’s shares climbed the most in a month, with banks posting their biggest surge since October 2011, on optimism that China’s economy is stabilising at last.

A rebound in banks helped lift European stocks from their lowest levels since 2013, trimming a second weekly decline.

Italy’s banking woes are set to plague prime minister Matteo Renzi for months to come after a long-sought deal with the EU on bad debts disappointed investors.

European stocks posted their biggest two-day gain since October 2011 on increased investor confidence that central banks will act to support markets.

Mario Draghi’s promise that the ECB is willing to step up its stimulus if needed is resonating with economists, who see the eurozone recovery as too shallow to be sustained.