EU leaders on Thursday agreed to create a single banking overseer for the eurozone that could aid ailing banks, but Germany and Britain balked at some details and on Friday Merkel pronounced aid for banks dead in the water for now, The New York Times reported.
"If recapitalization is possible, it will only be possible for the future," Merkel said after the two-day meeting.
The 27 EU heads of state and government agreed "on a political framework for the end of 2012 and a gradual implementation in 2013" of a new EU single supervisory mechanism, European Commission spokesman Olivier Bailly said after the first day of a two-day EU leaders' summit on resolving the eurozone debt crisis. The commission is the EU executive body.
The European Central Bank was put into the framework as the region-wide banking supervisor, officials said, formalizing an arrangement the leaders agreed to at a summit meeting in late June.
The new system would be phased in next year starting Jan. 1 and likely cover all 6,000 banks in the 17-nation eurozone by Jan. 1, 2014, an EC official said.
It is intended to break the connection between banks and governments at the root of the euro crisis.
The idea was eagerly supported by Ireland, Italy and Spain because it would set the stage for letting weak banks in those countries tap Europe's new bailout fund directly, without loading more debt on those countries' governments.
But as the largest contributor to the eurozone bailout facility, Germany has long insisted that it maintain some control over its taxpayer funds and prevailed with that intention on Friday.
Spain, on the other hand, has been balking at applying for international loans, as any funds the government accepts would be added on to its sovereign debt.
El Pais reported Friday that Spanish Prime Minister Mariano Rajoy told reporters he had not made a decision on whether or not Spain would apply for help. "I have to take this decision as the head of the government and it hasn't been taken," he said.
"If I have to take it, I will take it," he added.
Rajoy said the summit included some progress. "There is a willingness in Europe to continue moving toward integration, but things are never easy," he said.
Germany remained at odds with the EC over the scope of the proposed ECB supervision, saying it wanted the ECB's authority limited only to the biggest, "systemic" banks, the BBC reported.
EU Commission President Jose Manuel Barroso, however, said the ECB would "be able to intervene if needed in any bank in the euro area."
Britain, a key EU financial center, said it wanted safeguards to protect the powers of the Bank of England, Britain's central bank, the BBC said.
As the leaders met, Greece, the eurozone state worst hit by the debt crisis, was gripped by another 24-hour general strike, with at least 20,000 protesters marching in central Athens amid clashes between demonstrators and police.
The Greek government must agree on an additional $18 billion in cuts in government spending, pensions and social benefits, as well as make structural reforms, if it wants to get the next $41 billion bailout installment.
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