Bailout approved

Part of the money is already on Commerzbank's balance sheets after Berlin injected 8 billion euros ($10.6 billion) into the bank in December last year. Now, Commerzbank stands to receive another 10 billion euros of fresh capital. Berlin however needed the approval of Brussels and on Thursday the EU commission gave its green light.

"On the basis of the notified plans, the Commission is satisfied that Commerzbank's long term viability has been demonstrated, and that the aid is kept to the minimum and will not lead to undue distortions of competition. It has therefore declared the aid compatible," the EU executive said in a statement.

But the government aid will be tied to strict restructuring conditions. Commerzbank will have to sell its Eurohypo unit, a major European player in the real estate business. In addition, the bank will be banned for three years from buying other financial institutes that it competes with.

Commerzbank, which is Germany's second largest private bank with a balance sheet total of 1,100 billion euros of capital, ran into financial trouble as a result of the global credit crunch.

Berlin has welcomed the decision from Brussels. A government spokeswoman said it was "an important step to strengthen the trust in the government's bailout fund." In the wake of the global financial crisis, Germany has created a 470-billion-euro rescue fund to support the struggling sector.