BRUSSELS (MNI) – Bailing out troubled banks with the Eurozone’s
permanent rescue fund, the European Stability Mechanism, could help
break the unhealthy mutual dependency of the currency bloc’s banks and
governments, the European Commission said in a report on Wednesday.

“To sever the link between banks and the sovereigns, direct
recapitalisation by the ESM might be envisaged,” the Commission said in
its analysis.

The idea, however, could prove difficult to implement since the
treaty creating the ESM explicity states that the fund can only lend to
governments in return for promises of reforms.

The treaty has yet to be ratified by most governments.

The EU executive argues that closer integration among euro area
countries in their supervision of the financial sector is needed and
that the 17 countries in the monetary union should move towards a
“banking union.”

–Brussels Newsroom, +324-952-28374; pkoh@marketnews.com

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