Europe's plan for a EU-wide banking union suffered a setback yesterday after France and Germany published an alternative proposal for European economic governance.

The plan, which German Chancellor Angela Merkel and French President Francois Hollande will present at a key EU summit this month, calls for a greater role for national authorities in the resolution and recovery of banks. This is in contrast with Brussels’ preference for an enhanced ECB role.

The nine-page "contribution" also specifies proposals for a timetable for direct recapitalisation of banks by the euro zone's rescue fund – a key concern for Ireland as it seeks to secure direct recapitalisation for AIB and Bank of Ireland by the fund.

The Franco-German proposal states that while the main features for the operational criteria for direct banking recapitalisation scheme should be decided by June, it will only be "finalised" when the Bank Recovery and Resolution and Deposit Guarantee Directives are finalised with the European Parliament.

A decision on whether the fund will be used to retroactively capitalise will be made this month, with many countries opposed to the move. Eurogroup chairman Jeroen Dijsellbloem told The Irish Times in April that a final decision on the application of the ESM to individual countries would only be made after the ECB takes over the supervision of banks.

Crisis deepened
Meanwhile, new figures show that Europe's unemployment crisis deepened in April, with the unemployment rate in the euro zone rising to a record 12.2 per cent, and 11.0 per cent across Europe as a whole.

Ireland was the only country to record a small drop, with its unemployment rate declining from 13.7 per cent to 13.5 per cent last month.

The southern-most countries of the bloc continued to have the highest rates of unemployment, with Greece’s rate hitting 27 per cent.

Spain and Portugal recorded unemployment rates of 26.8 per cent and 17.8 per cent. Youth unemployment was 62. 5 per cent in Greece and 54.6 per cent in Spain.