Merkel open to European banking union idea

BERLIN -- German Chancellor Angela Merkel said Monday she is open to establishing a European banking authority as a long-term solution to the continent's financial crisis. Her support as leader of the European Union's biggest economy could be crucial for the concept, which aims to strengthen the eurozone and calm jittery markets.

Europe's worsening debt crisis is raising wide concerns. Finance ministers and central bank presidents of the world's seven wealthiest countries -- including Germany -- were expected to hold an emergency conference call Tuesday to discuss the situation.

The proposal to create a Europe-wide authority overseeing and ultimately guaranteeing the banks' stability was first floated last week by the European Commission, the executive body of the EU. But rich countries such as Germany have been lukewarm about the idea because of fears it could eventually lead to their bailing out other countries' banks.

Merkel told reporters ahead of a private session with Commission president José Manuel Barroso that the pair "will also talk about to what extent we have to put systemically [important] banks under a specific European oversight."

And while she expressed willingness to consider the concept, she stressed a banking union cannot be set forth as a quick fix, but rather as a more long-term goal.

The European Central Bank is the joint monetary authority for the 17 nations who use the euro currency, but each country is responsible for overseeing its own banks. So when things go wrong, each country has to decide whether to bail out its banks.

For instance, Spain -- already under market pressure due to its debt burden and declining economy -- needs to provide $23.6 billion in aid to rescue its most ailing lender. The government has promised to help Bankia S.A. but has not said where the money will come from.

Spanish officials have called for Europe's new permanent rescue fund to be able to recapitalize banks directly, but German officials, among others, have ruled that out, noting Europe cannot bail out national banks if it has no supervision over them.

Merkel reiterated her conviction the short-term priority must be combining fiscal consolidation with fostering economic growth through reforms. Still, she echoed calls to strengthen European integration. "It is completely obvious, and I have often said that: In the eurozone we need at minimum more Europe and not less Europe," she said.