No direct bank recapitalisation by ESM from January: Germany's Schaeuble

German Finance Minister Wolfgang Schaeuble said on Friday that he saw no prospect of Spanish banks being recapitalised directly through a European rescue firewall from the start of January.

“I don’t see a direct recapitalisation of banks through the (European Stability Mechanism) as early as January,” Schaeuble said on arrival for Eurogroup finance ministers’ talks in Cyprus.

At the last European Union summit in June, leaders agreed to give the revamped 500-billion-euro (US$645 billion) ESM rescue fund -- signed on Thursday by German President Joachim Gauck after clearing a constitutional court challenge -- the potential to recapitalise banks directly, currently not an option.

However, this depends on a separate race against time to conclude tough talks on updated rules governing new EU-wide bank supervision by the turn of the year, also on the table in Nicosia.

In Schaeuble’s eyes, the agreement on supervision is a key factor underpinning recapitalisation efforts.

Without direct recapitalisation through the ESM, Spain would have to put advance borrowings onto sovereign debt accounts, pushing it closer to needing a full sovereign bailout.