BRUSSELS, June 5 (UPI) -- Group of Seven finance leaders said the economic crisis in Europe warrants close scrutiny, but added nothing to policy options already on the table Tuesday.
After an emergency conference call between Group of Seven finance ministers and central bank governors, a statement released by the U.S. Treasury Department said the group "reviewed developments in the global economy and financial markets and the policy response under consideration, including the progress toward financial and fiscal union in Europe."
In Madrid on Tuesday, Finance Minister Cristobal Montoro said Spain "has problems when it comes to financing itself," as the country asked for international assistance to see it through the financial crisis that has threatened its financial system, the Los Angeles Times reported.
Yields on 10-year Spanish bonds have risen above 6 percent, making it prohibitive for the government to borrow on the bond market.
As a response to the crisis, Group of Seven leaders "agreed to monitor developments closely," the Treasury said.
The group includes Germany, Japan, Britain, the United States, Italy, Canada and France.
"There's no question that markets remain skeptical that the measures taken thus far are sufficient to secure the recovery in Europe and remove the risk that the crisis will deepen," White House press secretary Jay Carney said.
Europe's leaders have been discussing several proposals that would break the mold on existing international support systems, including formation of a eurobond and creation of a banking union that would put central authority behind the continents banking sector.
Recently, focus has concentrated on formation a banking union, an idea that has found strong support from French Finance Minister Pierre Moscovici and Olli Rehn, the European commissioner for economic and monetary affairs.
They said $626 billion European Stability Mechanism, due to be launched next month, should be redirected so it can inject money directly into troubled banks in Spain and elsewhere, rather than go straight to governments.
This system help rescue Spain's banking industry without requiring the government of Prime Minister Mariano Rajoy to comply with draconian budgetary cuts of a Greek-style bailout, which Rajoy says Spain wants to avoid.
Bailing out banks directly from the new fund -- which is to replace the temporary European Financial Stability Facility and European Financial Stabilization Mechanism that bailed out Greece, Ireland and Portugal -- is not what the fund was intended to do, Rehn said.
"But we see that it is important to consider this alternative of direct bank recapitalization as we are now moving on in the discussion of the possible ways and means to create a banking union," he told reporters in Brussels, adding it was important "to break the link between the sovereigns and the banks."
Moscovici said France would call for the ECM rule change when European Union heads of state and government hold a formal summit June 28-29.
"We are in favor of this banking union," Moscovici said in Brussels. "It's a fundamental issue for which proposals are on the table."
Germany has opposed the idea, with German officials insisting bailout money must flow through governments, with strict conditions, but German Chancellor Angela Merkel said Monday evening Germany may soften its position a bit, The New York Times reported.
"The world wants to know how we expect the political union to complement the currency union," she told a news conference in Berlin. "We have to find an answer in the foreseeable future."
Under existing bailout-fund rules, money may go only to governments that request a state rescue -- the governments then use the cash to shore up their distressed banks.
Banking analysts estimate Spain might need a bailout of more than $125 billion to shore up four of its failing banks, although the head of the eurozone's largest bank said the banks would need less than half that amount.
Emilio Botin, executive chairman of Spain's Banco Santander SA, said about $50 billion "will be enough" for the four banks, the British newspaper The Guardian reported.
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