German chancellor Angela Merkel has said she is open to establishing a European banking authority as a long-term solution to the continent's financial crisis.
Her support as leader of the EU's biggest economy could be crucial for the concept, which aims to strengthen the eurozone and calm jittery markets.
Europe's worsening debt crisis is raising concerns well beyond the continent. Finance ministers and central bank presidents of the world's seven wealthiest countries - which includes Germany - were expected to hold an emergency conference call today to discuss the situation.
The proposal to create a Europe-wide authority overseeing and ultimately guaranteeing the banks' stability was first floated last week by the European Commission, the executive body of the EU. But rich countries such as Germany have been lukewarm about the idea because of fears it could eventually lead to them bailing out other countries' banks.
On Monday, Ms Merkel told reporters ahead of a private session with EU Commission president Jose Manuel Barroso that the pair "will also talk about to what extent we have to put systemically (important) banks under a specific European oversight".
And while she expressed willingness to consider the concept, she stressed that a banking union cannot be set forth as a quick fix, but rather as a more long-term goal.
The European Central Bank is the joint monetary authority for the 17 nations who use the euro currency, but each country is responsible for overseeing its own banks. So when things go wrong, each country has to decide whether or not to bail its banks.
For instance, Spain - already under market pressure due to its debt burden and declining economy - needs to provide 19 billion euros (£15.4 billion) in government aid to rescue its most ailing lender. And although the Spanish government has promised to help Bankia, it has yet to explain where the bulk of the money will come from.
Spanish officials have called for Europe's new permanent rescue fund to be able to recapitalise banks directly, but German officials, among others, have ruled that out, noting that Europe cannot bail out national banks if it has no supervision over them.
Mr Barroso maintained that a "banking union with more integrated financial supervision and deposit guarantees" was the necessary step to complete the monetary union with an economic union. Europeans must do "whatever is necessary to ensure the stability of our currency", he added.
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