PARIS (MNI) – Eurozone finance ministers approved Friday an
agreement to lend up to E100 billion to Spain to recapitalize its
banking system, but the exact amount of the loan won’t be know until
September.
The ministers said in a statement that the aid was “warranted to
safeguard financial stability in the euro area as a whole.” The Spanish
state, rather than the banks “will retain the full responsibility” for
paying back the debt, the Eurogroup said.
The agreement came as Spanish financial markets again came under
pressure, with yields on 10-year government bonds climbing to near a
euro-era high of 7.23%. The spread between Spanish and German 10-year
bonds rose to a record 606 basis points.
While the final Spain deal was virtually identical to a draft
memorandum of understanding that circulated last week, markets remained
nervous that, with Spain’s economy continuing to weaken, the bank
bailout could be a precursor to fall-scale bailout of the country.
Under the bank agreement, 14 banking groups comprising 90% of the
Spanish banking system will undergo “stress tests” that will be
completed by the second half of September.
The stress tests and the results of an earlier audit by the
consulting firms Oliver Wyman and Roland Berger, showing Spanish banks
needed as much as E62 billion in capital, will determine the actual
amount of the loan.
The loan will be provided by Europe’s temporary bailout fund, the
European Financial Stability Facility, to Spain’s bank restructuring
agency, the Fund for Orderly Bank Restructuring. Once the permanent
bailout fund, the European Stability Facility is operational, it will
take over the funding without the loan gaining senior creditor status.
The Eurogroup decided that the EFSF will set aside an initial
tranche of E30 billion which Spain can use “in case of urgent unexpected
financing needs.”
–Paris newsroom, +33142715540; jduffy@marketnews.com
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