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Merkel urges ‘political’ union to lead Europe out of crisis

BERLIN — German Chancellor Angela Merkel pushed for a stronger European political union Thursday amid growing international calls for action as fears of a Spanish banking meltdown fuelled the eurozone crisis.

British Prime Minister David Cameron and US President Barack Obama have ratcheted up the pressure, calling for an “immediate plan” for the debt-wracked eurozone, and Merkel met Cameron in Berlin later in the day.

With time running out for Europe to help stabilise Spain’s banking system to avoid a costly bailout for the eurozone’s fourth biggest economy, Merkel told German television she saw “more Europe” as the solution to the crisis.

The chancellor, who opposes several of the crisis-fighting options mooted so far, said that in addition to the common currency used by 17 nations, Europe needed a fiscal union and, above all, a political union, even if that came at the cost of a two-speed approach.

“We need a political union first and foremost, that means we must, step by step, cede responsibilities to Europe,” Merkel told Germany’s public television ARD.

“We must be open to always make it possible for everyone to take part. But we must not remain immobile because one country or another does not want to follow yet,” she added.

On Wednesday, Obama spoke by phone to Merkel and Italian Prime Minister Mario Monti, in a sign that Washington was increasingly anxious the turmoil could escalate and threaten both the US economy and Obama’s re-election hopes.

That followed Obama’s telephone conversation late Tuesday with Cameron, who on his visit to the German capital later Thursday was likely to urge Merkel to push for tighter fiscal governance in the eurozone.

Speaking on British public BBC radio, Britain’s finance minister George Osborne called for a rapid recapitalisation of Spain’s troubled banking sector.

Meanwhile Spain’s borrowing costs soared in a major bond test Thursday with 10-year bonds fetching more than 6.0 percent — a rate widely regarded as unsustainable for the state over the longer term.

However, the sale proved the country can access the market despite investor fears it will be forced to take an international lifeline because it cannot raise the huge sums required to rescue its bad loan-ridden financial sector.

An IMF report on Spanish banks to be released Monday will price their capital needs at 40-80 billion euros ($50-100 billion), Spanish newspaper ABC said Thursday, citing a draft of the document.

The Spanish authorities have given themselves two weeks to take a decision on how to recapitalise weakened banks.

European leaders are under pressure to thrash out immediate remedies and a longer-term action plan at a June 28-29 summit to deal with the two year-old crisis that has also brought Greece to the brink of a eurozone exit.

Merkel sought to play down expectations of the summit however, telling ARD she did not believe “that one summit is capable of settling everything in one fell swoop.”

France also raised 7.84 billion euros in medium- and long-term debt Thursday, with solid demand that indicated investors considered French debt a safe haven from the eurozone debt crisis, and at lower rates.

European stocks advanced Thursday, extending recent bumper gains on lingering hopes for stimulus measures to help boost the weak global economy, and after the generally well-received Spanish bond sales.

In late morning deals, London’s benchmark FTSE 100 index added 1.4 percent to 5,459.08 points after the Bank of England left its main interest rate at a record low of 0.5 percent and to maintain its asset purchases programme.

Madrid’s IBEX 35 index leapt 1.48 percent to 6,514.70 points, the Paris CAC 40 won 0.63 percent to 3,077.85 points and Frankfurt’s DAX 30 gained 0.45 percent to 6,121.92 points.

“European politicians are mulling a master plan for the euro area more seriously including a fiscal union,” Rainer Guntermann, of Commerzbank, said.

“The momentum in the debate is new rather than the ideas and it is not a quick fix to the crisis,” he added.