PARIS The finance ministers of France and Spain called on Wednesday for common euro zone bank supervision to be put in place by the end of the year, as fears grow over soaring borrowing costs in Spain that are pushing the country towards needing a bailout.
French President Francois Hollande also said that measures decided at a European Union summit late last month needed to be implemented quickly, as Spain battles to put its finances right.
The joint call for bank supervision by Spanish Economy Minister Luis de Guindos and French Finance Minister Pierre Moscovici after a meeting in Paris echoed remarks made by de Guindos and German Finance Minister Wolfgang Schaeuble after they met on Tuesday.
"Our common strategy for the stability of the euro area includes the adoption, by the end of this year, of a single supervisory mechanism for banks of the euro area, involving the ECB," de Guindos and Moscovici said in a joint statement.
"We expect proposals by the Commission by September and commit to a swift negotiation. This supervisory mechanism will open the way for direct recapitalizations with appropriate conditionality," they said.
They said Spanish debt yields, which have surged above 7 percent, do not reflect Spain's economic fundamentals, its growth potential and the sustainability of its public debt.
The proposed banking union needs to be in place before the euro zone's permanent ESM rescue fund can provide aid directly to banks, under measures agreed at the June 28-29 summit to make the EFSF/ESM rescue funds more flexible and efficient.
Hollande discussed the worsening crisis at a cabinet meeting on Wednesday, including Moody's new negative credit rating outlooks on German and Dutch debt, and talked about the need for the European Union to be able to respond to developments as fast as markets do, government spokeswoman Najat Vallaud-Belkacem said.
Hollande told his ministers it was "absolutely necessary to implement decisions made at the June European Summit quickly and firmly," Vallaud-Belkacem said, when asked what the president had said about the risks of Spain needing a bailout.
Spain and Italy have called for more to be done to ward off market pressure. The ECB has cut interest rates but has shown marked reluctance to revive its bond-buying program to lower borrowing costs.
De Guindos told a Reuters reporter as he left the French finance meeting that his meeting with Moscovici had gone "very well" but did not expand.
Moscovici told parliament he had assured de Guindos of France's support for Spain during a banking crisis there that is affecting the whole euro bloc. "You can count on our determination to get the euro zone back on its feet," he said.
Vallaud-Belkacem and a second government official said Hollande's other concern was to get moving with applications for project bonds and other investment financing made available under a 120 billion euro growth package for the bloc.
Spain and Italy also called for a swift implementation of the EU summit decisions during a meeting in Brussels on Tuesday of their and France's European affairs ministers, according to a statement by the Spanish government.
(Reporting by Emmanuel Jarry, Leigh Thomas, Catherine Bremer and Nick Vinocur in Paris and Paul Day in Madrid; Editing by Catherine Bremer and Susan Fenton)