Spain, Portugal leaders demand eurozone banking union

The leaders of Spain and Portugal on Monday demanded that the 17-nation eurozone speed up efforts to create a banking union and complained that credit was frozen in their countries, preventing economic growth and crucial job creation.

Many banks are lending at relatively high rates because they are worried about the weak economy.

Those higher borrowing rates are making it difficult for households and companies to spend and invest.

"The money (from the banking system) isn't reaching businesses and the real economy," Portugal's Pedro Coelho said after meeting with Spanish Prime Minister Mariano Rajoy.

Their bilateral government summit in Madrid came as European finance ministers were gathering in Brussels to discuss the continent's financial crisis.

Both Rajoy and Passos Coelho called on the European Union to move swiftly to create a regional banking union and to slow down budget cuts to help the economy grow.

Rajoy called the banking union "a test to the credibility" of the European Union.

Passos Coelho said investment was the only way to create jobs, adding that unemployment was "dramatic" and a "tragedy" in both countries.

Spain has been in recession for most of the past four years and has a record 27.2 percent unemployment rate.

Portugal, with a 17.7 percent jobless rate, is one of four eurozone countries to have received a sovereign bailout.

Both leaders said that more must also be done to reduce the crushing unemployment rates, which are particularly high for young people.