8 Jun 2012

Europe ready to act to ensure on euro - Merkel

8:36 pm on 8 June 2012

Chancellor Angela Merkel of Germany says Europe is ready to act to ensure stability in the euro zone as Spain's credit rating is cut amid expectations it may soon seek EU help for banks beset by bad debts.

Spanish Prime Minister Mariano Rajoy says he will wait for the results of independent audits of the banking system before talking with Europe about how to recapitalise troubled lenders.

An International Monetary Fund report due on Monday is expected to show Spanish banks need at least 40 billion euros.

Spain's sovereign credit rating was lowered on Thursday by three notches to BBB by Fitch, which signalled it could make further cuts.

The new rating leaves it two short of junk status, which would force many institutional investors to automatically dump Spanish assets.

Fitch estimates that Spanish banks need 50 - 60 billion euros in capital.

In a television interview, Mrs Merkel said the euro zone was moving inevitably towards a political union requiring nations to cede more sovereignty, which would lead to more of a multi-speed Europe, with non-euro states in the slow lane.

"I don't believe that there will be one single summit that will decide on a big bang," she told ARD.

"But what we have been doing for some time, and on which a working plan will certainly be presented in June, is to say we need more Europe."

"Whoever is in a currency union will have to move closer together. We have to be open to make it possible for everyone to participate.

''But we cannot stand still because some do not want to go with us," Mrs Merkel said.