By Simon Miller

The European Stability Mechanism (ESM) must start with a clean slate according to the Finnish finance minister Jutta Urpilainen.

Speaking to reporters in Helsinki, Urpilainen said Europe's bailout fund "shouldn't be used to recapitalise banks to deal with existing and old problems".

Her comments come after Finland, Germany and Holland went back on an agreement that would have allowed direct recapitalisation of Spanish banks.

The alliance of AAA countries said that the ESM could not cover "legacy assets" from past banking crises, preventing the fund from recapitalising Spain's banks directly under the €100bn (£79bn) loan deal agreed with Madrid in June leaving the burden entirely on the Spanish state.

According to Spanish newspaper Expansion, the extra debt burden was likely to be around €60bn or 6% of GDP depending on the results of Friday's bank stress tests.

Urpilainen commented: "The starting point for the banking union isn’t to resolve the current crisis but prevent future ones and create mechanisms to deal with future crises."

"There is no conflict because the possibility of direct bank recapitalisation is explicitly tied to the existence of a single bank supervisor. It is possible various member states have had differing expectations for the use of the ESM. This is clearly seen in the comments by those countries," she added.

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