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Rehn, Moscovici Step Up Demand for Direct Euro-Area Aid to Banks

The top European Union and French finance officials pressed to allow direct euro-area aid for troubled banks in the face of German opposition.

EU Economy Commissioner Olli Rehn and French Finance Minister Pierre Moscovici said letting the euro’s permanent rescue fund inject cash into banks instead of channeling the money through national governments would help stem the debt crisis in Europe. The step would move the 17-nation euro area toward a “banking union,” they said.

“We have been considering this as a serious possibility of breaking the link between the sovereigns and the banks,” Rehn told reporters today in Brussels. “It is important to consider this alternative of direct bank recapitalization.”

The European Commission, the 27-nation EU’s executive arm, backed the idea last week along with Spanish Premier Mariano Rajoy as concerns grew that Spain would be forced to seek emergency funds for its banks following 386 billion euros ($481 billion) in international loan pledges to Greece, Ireland and Portugal since 2010.

The new French administration under Socialist President Francois Hollande has also weighed in with its support for giving this power to the European Stability Mechanism, challenging German Chancellor Angela Merkel’s stance that euro-area bank aid must go through governments in order to enforce related conditions.

‘Isn’t Mysterious’

“Our position isn’t mysterious,” Moscovici said today in Brussels with Rehn at his side. “We too are in favor of this banking union. It’s a fundamental issue for which proposals are on the table.”

Moscovici expressed hope that this would mark “one of the new avenues” to be opened in tackling the debt crisis at a June 28-29 meeting of EU heads of government in Brussels.

The ESM, due to start operating in July, is the successor to the temporary European Financial Stability Facility, which is likewise restricted to providing any aid to banks via governments. So far, no euro nation has requested funds to recapitalize lenders from the EFSF, whose role to date has been to sell debt to finance rescue loans for Ireland, Portugal and Greece.

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