Commission to unveil bank bail-out plan

EU officials are racing to co-ordinate a substantial bank recapitalisation after weeks of denying that there was any problem with the sector. Declaring the bloc's banks liquid and solvent, leaders said that all but eight had passed stress tests in July.

But a faltering European economy and fears over exposure to peripheral debt has significantly worsened the situation for the bloc's troubled lenders since the tests were organised.

An emergency rescue of Franco-Belgian bank Dexia on Sunday forced the hands of EU officials, with German Chancellor Angela Merkel and French President Nicolas Sarkozy saying the same day that bank re-capitalisation plans were underway.

Barroso last week had said that a "co-ordinated" bank recapitalisation is necessary.

Also on Tuesday, credit rating agency Fitch downgraded six Spanish banks.

Adding to the gloom on Tuesday, the outgoing chief of the European Central Bank, Jean-Claude Trichet, warned that the renewed banking crisis now threatened the world economy.

"The high interconnectedness in the EU financial system has led to a rapidly rising risk of significant contagion. It threatens financial stability in the EU as a whole and adversely impacts the real economy in Europe and beyond," he told MEPs, speaking in his capacity as head of the European Systemic Risk Board.

In the Hague after a meeting with Dutch Prime Minister Mark Rutte, Barroso also said for the first time that the commission backs the Netherlands' proposals for a 'super-commissioner' who would have the power to make a 'ward' of any heavily indebted member state and take over all economic policy-making from an elected government.

He said the role should rest with the current economic and monetary affairs commissioner, Finnish liberal Olli Rehn.

"We need a stronger governance, a stronger discipline," he explained, "and that's why I favour the idea put forward by prime minister Rutte of a stronger role for the commission, including the naming of a commissioner of economic and financial affairs."

Finland has also publicly backed the Dutch plans and it is understood that Germany finds aspects of the proposals favourable.

Europe needs "strengthened discipline, with a stronger governance and a common approach by independent European institutions," Barroso went on in The Hague.

"It has to do with the credibility of the eurozone and the credibility of our common effort."