BRUSSELS German Chancellor Angela Merkel said on Friday banks could not be retrospectively recapitalized via the euro zone's permanent bailout fund once a pan-European bank watchdog in place.
"There will not be any back-dated direct recapitalization. If recapitalization is possible, it will only be possible for the future so I think that when the banking supervisor is in place we won't have any more problems with the Spanish banks, at least I hope not," she said at a news conference on the second day of summit of EU leaders in Brussels.
Merkel said banks could also only be directly recapitalized via the European Stability Mechanism (ESM) once a fund which banks pay into had been set up.
The point when the European Central Bank effectively becomes the bloc's banking supervisor is important because it would open the way for the ESM to inject capital directly into troubled banks without adding to their host government's debts.
European Union leaders agreed earlier on Friday that a single supervisor would take responsibility for overseeing euro zone banks from next year.
(Reporting by Angelika Stricker and John O'Donnell, Writing by Michelle Martin)