Image caption Workers protesting government cuts as ministers held crisis talks on Spain's record borrowing costs

France and Spain have called for EU leaders to accelerate a rescue plan for Spanish banks to calm fears of a full international bailout.

Spain said there had been a "worrying delay" in executing plans agreed by eurozone leaders last month.

The main provision would allow the future European bailout fund, the ESM, to pour money directly into ailing banks.

Under the deal, the Spanish government would avoid an international rescue.

However, the creation of the fund has been hampered by constitutional challenges in Germany which mean Berlin will not be able to ratify the agreement before 12 September.

"The swift implementation of the financial assistance programme is essential to restore confidence and recreate conditions for growth," French Finance Minister Pierre Moscovici and Spanish Economy Minister Luis de Guindos said in a joint statement after talks in Paris late on Wednesday.

Germany's finance minister Wolfgang Schaeuble stopped short of calling for immediate action on the bank plan following a meeting with his Spanish counterpart on Tuesday, but reiterated his belief that the fundamentals of Spain's economy remained strong.

No new bailout

France and Germany are the eurozone's biggest economies and the biggest contributor to its rescue funds, which have been used to bail out Greece, Ireland and Portugal so far.

Fears increased this week that the Spanish government might need a similar full international bailout.

Madrid has been granted assistance but it is directed at its banks, and does not come with the strict economic monitoring of a full rescue.

A German finance ministry spokesman said there was no question of Spain seeking a new bailout.

Meanwhile, share and bond markets rose modestly in early trade on Wednesday, partly in response to hopes that the new eurozone rescue fund, the European Stability Mechanism (ESM) would be given a full banking licence, something that would boost its power.

A European Central Bank (ECB) governing council member, Ewald Nowotny, said that giving the permanent rescue fund a banking licence to increase its capacity had merits.

Such a licence would allow it to exchange the bonds it buys to support indebted countries for fresh cash from the ECB, without needing extra government funds.

But the issue is highly political, with the ECB President Mario Draghi against the idea.

Spain's 10-year bond yield fell to 7.4% on Wednesday, although that is still well above the 7% level at which refinancing is seen as unsustainable.

German sentiment suffers

Ifo index Monthly survey of 7,000 businesses

Firms work in manufacturing, wholesaling, retailing and construction

Firms surveyed are asked to assess the current situation as good, satisfactory or poor

Expectations are given as more favourable, unchanged or more unfavourable

A higher index reading indicates improvement on the previous month

Also on Wednesday, German business confidence fell in July to its lowest level in 28 months, according to a closely watched survey.

The Ifo think tank's index stood at 103.3 , down from 105.2 in June, citing a "significant deterioration" in the manufacturing business climate.

It was the third month in a row the Ifo registered a fall in sentiment.

The news comes shortly after the Moody's rating agency put Germany's top AAA rating on negative outlook, citing risks from the rest of the eurozone.

The German economy is slowing, but the government said it still expected it to grow by 0.7% this year, at a time when much of the rest of the eurozone is in or near recession.

A spokeswoman from the Economy Ministry said the German economy would remain strong: "[The Ifo survey] shows that uncertainty in the eurozone has increased."

"The euro debt crisis raises the risk for our economy as well but at the same time our economy has a high degree of growth and resistance. Our situation is robust."

There are also fears that Germans may be asked to contribute much more to rescue funds to help Spain, Greece and even Italy, which could weigh on German government finances and hamper its own economic growth.

As a result, credit ratings agency Moody's downgraded the outlook for Germany's AAA credit rating to negative, a first step towards a possible cut in Germany's credit-worthiness.