BRUSSELS, June 29 European leaders agreed on
Friday to create a single supervisory body for euro zone banks
and to allow them to be recapitalised directly by the currency
area's rescue fund without adding to government debt.
European Council chairman Herman Van Rompuy said the aim was
to create a supervisory mechanism involving the European Central
Bank by the end of this year, and to break the "vicious circle"
between banks and sovereign governments.
He also said countries that were complying with European
Union budget policies would be able to access the bloc's
temporary EFSF and permanent ESM rescue funds to support their
government bonds on financial markets.
"We are opening the possibility to countries that are well
behaving to make use of financial stability instruments in order
to reassure markets and to get again some stability around some
of the sovereign bonds of our member states," Van Rompuy told a
4.30 a.m. (0230 GMT) news conference after late night talks with
leaders of the 17-nation currency zone.
Spain and Italy had withheld their agreement to a growth
package at a European Union summit to demand emergency action to
bring down their spiralling borrowing costs, which threatened to
force the third and fourth largest economies in the euro zone
out of the capital markets.