The European Commission is calling for direct assistance for troubled banks in the euro currency bloc as Spain struggles to finance the takeover of one of its largest banks.
The commission — the executive arm of the European Union — said Wednesday the 17-nation eurozone should consider creating a “banking union” that would share the burden of rescuing banks with massive collections of bad loans. That could help Spain, which is assessing how to pay for a $24 billion takeover of Bankia.
A banking union could ease the burden on the eurozone's debt-ridden countries that currently are responsible for dealing with troubled banks within their borders. But the proposal almost certainly would draw the opposition of Europe's strongest creditor nations, such as Germany, Finland and the Netherlands, where the governments and voters have grown increasingly weary of providing more assistance for countries with the monetary union's weakest economies.
With the worries about the Spanish banking system, stocks fell more than one percent on major European and U.S. exchanges.
The European Commission says that Spain is at the top of its list of troubled economies, and might need more time to bring its government deficit in line with European mandates.
Spain's borrowing costs are soaring, rising by the day, close to levels that forced Greece, Ireland and Portugal to seek international bailouts. Interest rates on Madrid's 10-year bonds hit 6.67 percent Wednesday, just under the 7 percent rate that analysts consider unsustainable over the long term for governments to finance their operations.
With numerous financial analysts predicting that debt-ridden Greece will exit the eurozone, there was new evidence of its plight. The world's largest trade credit insurer, Euler Hermes, said it has stopped insuring exporters making shipments to Greece for fear they will not get paid if the country leaves the currency union.
If Greece reinstates use of its one-time currency, the drachma, analysts say it would be sharply devalued against the euro, potentially costing manufacturers sending goods to Greece huge sums of money. Greece's continued membership in the eurozone is tied directly to the outcome of new parliamentary elections set for June 17 after a vote earlier this month proved inconclusive.