According to Bloomberg, the European Union is now open to direct recapitalizations of European banks through the European Stability Mechanism—the permanent European bailout fund set to go into effect this summer.
This openness to direct bank recapitalizations comes from the European Commission, in policy recommendations released today.
While this change in policy response marks a significant departure from the Commission’s current crisis response, it is important to note that the language remains tentative and that this does not imply support from German Chancellor Angela Merkel or other EU leaders.
The Commission has long considered eurobonds a viable crisis solution, to the chagrin of Germany, Finland, Austria, and the Netherlands.
That organisation said that direct recapitalizations from the ESM “might be envisaged” in order to “sever the link between banks and the sovereigns.”
Check out the euro versus the dollar just after that headline came out:
Check out a similar jump in the French CAC 40:
Photo: Yahoo Finance
UPDATE: That enthusiasm seems to have abated a little bit, as investors consider exactly who is supporting direct bank recapitalizations.