EU Economic and Monetary Affairs Commissioner Olli Rehn said the European Commission would put forward legislative proposals for the creation of a "Single Supervisory Mechanism" for banks in the euro area, involving the European Central Bank, in early September. The creation of the central bank supervision will allow the EU's firewall fund to recapitalize banks directly rather than lending the money to a country's government — something that increases the country's debt load.
"Direct bank recapitalisation will enable us to break the vicious circle between banks and sovereign risk," Rehn said.
Ministers added the final decision on Greece's request to renegotiate the terms of the country's bailout agreements will depend on the conclusions of the so-called "troika" of debt inspectors currently overseeing the Greek program.
Greece has had to impose harsh austerity measures, including big cuts to pensions and salaries, to secure billions of euros worth of rescue loans from the IMF and other European countries that use the euro and avoid bankruptcy.
The finance ministers also reelected Juncker to a new 2 1/2 -year term as president of the eurogroup. But Juncker said he would step down late this year or early next year.
Slobodan Lekic and Robert Wielaard in Brussels, Toby Sterling in Amsterdam and Daniel Woolls in Madrid contributed to this report. Don Melvin can be reached at http://twitter.com/Don_Melvin
Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.