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BY MIKKEL NOEL LANZKY

The European Union won’t demand further recapitalization of the region’s banks for fear of causing a new recession. That’s the message from an EU banking committee this week.

European Central Bank President Jean-Claude Trichet says he sees no need to further recapitalize because the measures already in place are having the expected effect.

Jean-Claude Trichet: “The securities markets’ program strictly aims at correcting malfunctioning of markets. The prohibition of monetary financing underlines precisely the fact that budgetary discipline is of the utmost importance." (EUX.TV)

This position is in stark contrast to one held by the head of the International Monetary Fund -- Christine Lagarde. Speaking at the US Federal Reserve’s annual forum in Jackson Hole, Wyoming this past weekend, Lagarde warned of renewed recession. The Telegraph notes her concerns:

"Developments this summer have indicated we are in a dangerous new phase. The stakes are clear. We risk seeing the fragile recovery derailed. So we must act now."

The Globe and Mail says -- that’s a nice way of saying -- the stuff’s about to hit the fan, translating Lagarde’s words this way....

“... the European banks can’t be held together with Crazy Glue and paper clips much longer and that if they aren’t fixed soon, we’re heading for another whopper of a financial and economic crisis.”

But in a talking with the San Fransisco Chronicle, European Economic Commissioner Olli Rehn supports the ECB President, saying of the current recapitalization process:

"EU banks are significantly better capitalized now than they were one year ago. As the necessary recapitalization of EU banks proceeds, we expect their funding conditions to improve."

CNBC senior editor John Carney says the EU -- or individual European governments -- could be considering a regular bailout of European banks.

“So perhaps the European financial authorities are abandoning the backdoor in favor of the front door: bailing out the banks directly. This could save European banks while letting the weaker countries default, which would hurt the non-bailed out holders of the defaulted debt...”

And The Telegraph’s Andrew Lilico says -- instead of banks recapitalizing and further constricting -- the weak should just be allowed to fail.  So that the whole of Europe can get stronger.

“Banks do not need increased capital requirements. Instead, they need proper resolution mechanisms, whereby they can be allowed to go bust, safely, with losses for lenders instead of taxpayers and the wider macroeconomy.”

Transcript by Newsy.