- European Commission gets new powers over Eurozone to prevent deficits
- Merkel dismisses attempts to manipulate exchange rate
- Moody's says Spanish banks will continue to face liquidity

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European equities slid into the red at close Wednesday as lawmakers backed a deal to hand new powers to the European Commission.

Under the deal, the Commission will assume further control over the 17-nation bloc to prevent another debt crisis.

The new law will allow the body to review draft budgets of countries against European Union rules. European countries will be asked to change their budgets if they are not up to scratch.

Governments that choose to ignore the Commission's recommendations will risk legal action.

The law complements the existing budget rules, tightened at the end of 2011 through the introduction of hastier financial sanctions for those breaking deficit limits.

The new deal is expected to become law in March.

Elsewhere in Europe, German Chancellor Angela Merkel addressed concerns over the euro's strength in southern countries of the bloc.

She said the nations were "at pains to lower their labour unit costs in a fixed exchange rate regime" only to see the gains "melt away like the snow in the sun under certain conditions".

However, she dismissed attempts to manipulate exchange rates as she believed the present value of the euro against the dollar between $1.30 and $1.40 showed normality.

Spanish banks face liquidity, says Moody's

Credit agency Moody's said Spanish banks will continue to face liquidity and funding challenges in the coming months.

The agency recognised the early repaying of long-term refinancing operations - three year loans from the European Central Bank - and the resilience seen in retail funding from resident households and corporates as positive factors for Spain's financial institutions.

"However, we still consider that liquidity and funding will continue to constrain banks' credit profiles over the coming months. Whilst recognising the decline in the system's overall financing requirements, Spanish banks continue to display wholesale funding reliance at a time when accessibility to long-term wholesale markets, although improving, has not normalised," Moody's said.

Another European country facing troubles is Bulgaria. The country's Prime Minister Boika Borisov has decided step down after confrontations between protestors and the police turned violent and 25 people had to be hospitalised on Tuesday.

It follows weeks of protests over the country's austerity measures.

Meawhile in Italy, Silvio Berlusconi's rivals have accused him of trying to buy votes in Sunday's election by sending out letters promising a tax rebate.

The letter, sent to voters in swing regions of Italy, promised to scrap the unpopular property tax brought in under former Prime Minister Mario Monti.

Centre-left leader Pier Luigi Bersani labelled it a "scam".

Lafarge cements higher income

Shares in French bank Credit Agricole climbed despite posting a record loss for 2012 after goodwill writedowns and a tax charge related to the sale of its Greek unit.

Lafarge surged after the world's largest cement maker reported better-than-expected fourth-quarter earnings and said it will reach its cost-cutting goal a year earlier than first hoped.

BHP Billiton plunged after the Australian-based natural resources giant posted half-year losses.

Lufthansa tumbled as Europe's biggest airline by sales cancelled its dividend for 2012.

Other asset classes mixed

The euro/dollar rose by 0.51% to the 1.0164 dollar mark.

Front month Brent crude futures dropped by 1.591 dollars to the 115.710 dollar per barrel mark on the ICE.

RD

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