EU president Van Rompuy to unveil banking union plan

Christine Lagarde, the head of the IMF, warned last week that the eurozone is under "acute stress" and at risk of a downward spiral. She urged the eurozone to channel aid directly to struggling banks rather than via governments.

Mr Van Rompuy, who said recently the eurozone stood "at the edge of a cliff" with "a knife at its throat", told German paper Welt am Sonntag on Sunday: "Banking union is a fundamental element. I think we can move forward there more quickly than in other areas."

Proposals for a 'banking union' are expected to include a joint deposit guarantee scheme and a fund to wind down failing banks.

On Friday, German Chancellor Angela Merkel doused hopes of a break-through on proposals by Italy, France, and Spain to deploy the EU rescue funds to cap the bond yields of countries vulnerable to contagion, or to recapitalize banks directly to take the strain off sovereign states.

"Each country wants to help but if I am going to call on taxpayers in Germany, I must have guarantees that all is under control. Responsibility and control go hand in hand," she said after a crucial summit of the eurozone's Big Four powers in Rome.

"If I give moneystriaght to Spanish banks, I can't control what they do. That is how the treaties are written," she said.

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