BELGIUM: Euro zone ministers agree on memorandum for Spain and set parameters for bank aid.

Record ID: 644382

  • Title: BELGIUM: Euro zone ministers agree on memorandum for Spain and set parameters for bank aid.
  • Date: 10th July 2012
  • Summary: BRUSSELS, BELGIUM (JULY 10, 2012) (REUTERS) WIDE OF NEWS CONFERENCE
  • Embargoed: 25th July 2012 13:00
  • Keywords:
  • Location: Belgium
  • Country: Belgium
  • Topics: European Union,Economy,Politics
  • Reuters ID: LVA8525RHB7IAB9A7BXK8KMQYNTU
  • Story Text: Euro zone ministers agreed early on Tuesday (July 10) to grant Spain an extra year until 2014 to reach its deficit reduction targets in exchange for further budget savings and set the parameters of an aid package for Madrid's ailing banks.
    The decisions were aimed at preventing the currency area's fourth largest economy, mired in a worsening recession, from needing a full state bailout which would stretch the limits of Europe's rescue fund and plunge it deeper into a debt crisis.
    No final figure was agreed for aid to ailing Spanish lenders, weighed down by bad debts due to a housing crash and recession, but the EU has set a maximum of 100 billion euros ($123 billion) and some 30 billion euros would be available by the end of July if there was an urgent need.
    A final loan agreement will be signed on or around July 20, Eurogroup chairman Jean-Claude Juncker told a news conference.
    In one key decision closely watched by investors, ministers agreed that once a single European banking supervisor is set up next year, Spanish banks could be directly recapitalised from the euro zone rescue fund without requiring a state guarantee.
    "Direct access to EFSF or ESM is not a current issue. The prerequisite condition, and that is not easily done, is that a banking supervisor is implemented, not only intended or planned or anything, but is really put into existence", German Finance Minister Wolfgang Schaeuble said .
    That fulfils an EU summit mandate to try to break a so-called "doom loop" of mutual dependency between weak banks and over indebted sovereigns, but represented a climbdown for hardline north European creditor countries.
    France wants aid to Spain to be directly injected to the banks as soon as the ESM bailout fund allows it, Finance Minister Pierre Moscovici said in a news conference after the meeting.

    "As far as France is concerned, we'll argue for the retroactivity," Moscovici said.
    Moscovici said the Spanish government will announce additional fiscal measures in the next few days to bring down its deficit levels to 6.3 percent of GDP by next year.
    The minister also said that some 30 billion euros in funds would be made immediately available to Spain once euro zone ministers formally approve a bank recapitalisation scheme later this month, which he said could take place at a meeting in Brussels or a conference call.
    The Eurogroup ministers were tasked with fleshing out a bare-bones agreement reached by EU leaders at a summit last month on establishing a European banking supervisor and using the bloc's rescue funds to stabilise bond markets.
    But differences persisted between north European countries such as Finland and the Netherlands and southern states led by Italy and Spain.
    Earlier, ECB President Mario Draghi endured at times hostile questioning in the European Parliament, notably from German, Dutch and Finnish lawmakers concerned at the prospect of European bank bailouts using taxpayers' money.
    A wider gathering of EU finance chiefs on Tuesday will formally ease a deficit reduction goal that has forced Madrid to make punishing cuts that are exacerbating a recession.
    Spanish finance minister Luis de Guindos said he was satisfied with the draft memorandum of understanding on the bank rescue, under which Spain will create a single bad bank to house toxic assets from its banking sector.
    Spain and Italy continued to press for European action to put a cap on their borrowing costs.
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