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Julian Harris
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The Eurozone crisis escalated last night as credit rating agency Moody’s slashed the ratings of 28 Spanish banks, while earlier in the day German Chancellor Angela Merkel appeared to rule out plans to mitigate the euro area’s troubles with more debt sharing.

The mass downgrades followed the lowering of Spain’s sovereign rating to Baa3 on 13 June and come as another blow to the struggling Eurozone economy, which faces a combined housing and banking crisis.

Yet Banco Santander, one of Spain’s biggest lenders, is still rated above the country’s sovereign rating, Moody’s said in its statement. The agency cited the bank’s “geographical diversification” and Tier 1 capital ratio as reasons for its slightly better long-term rating, which fell from A3 to Baa2 last night.

Nonetheless, Moody’s actions completed a miserable day for the Eurozone, which saw German Chancellor Angela Merkel set the tone for what looks like becoming a confrontational meeting of European leaders in Brussels this week.

Merkel is set to stand her ground at the crunch summit – which is meeting to discuss the future of the Eurozone – after signalling stubborn resistance towards debt sharing plans promoted by struggling member states.

Taking on the debt liability of other countries would be “counterproductive”, Merkel told an audience in Berlin yesterday.

“When I think of the summit I feel concerned that yet again we will have too much focus on all kinds of ways of sharing debt,” she said, blasting the ideas as “economically wrong”.

At the summit, leaders from across the European Union are scheduled to discuss closer integration in the Eurozone and ways of preventing the debt crisis from growing further out of control.

Merkel’s strong words were backed up by a spokesperson who confirmed that she remained opposed to so called “easy” solutions to the crisis, an allusion to measures other than reform and deficit reduction.

“The Chancellor is worried that just before the European summit people are yet again expressing the wish for supposedly easy solutions, most significantly the wish for shared liability,” her spokesman Steffen Seibert said.

“If the German government opposes this, it is on the basis of European law and the German constitution, but also because it is our deepest economic and political conviction that liability and control must always go hand in hand.”

Merkel said she is aware that “many or even all eyes will be on us [Germany] once again”, but insisted that she will defend her support for sustainable policy.

Ministers in Brussels are expected to discuss a cross-border banking union and closer fiscal integration, as well as rescue mechanisms such as a debt redemption fund and eurobonds.

Eurobonds have been continually resisted by Germany, while Merkel has insisted that even a banking union must be accompanied by closer fiscal union rather than being used as an attempted quick fix for the debt crisis.

And further rescue measures from the European Central Bank (ECB) were also warned against in Germany yesterday, as Bundesbank chief Jens Weidmann told a forum in Hamburg that the central bank is close to moving beyond its mandate.