- Eurozone finance ministers approved €39.5bn in aid to Spanish banks on
- Effort to draw a line under a crisis that had threatened a full-blown bailout for Spain
Eurozone finance ministers approved €39.5bn in aid to Spanish banks on Monday night, formally ending a months-long effort to draw a line under a crisis that had threatened to push the country into a full-blown bailout.
The approval was largely preordained, particularly after the same finance ministers said in June they were ready to provide up to €100bn for Spain's banks, which have been brought low by the collapse of the country's housing bubble.
But while ministers' approval -- coming just hours after Madrid formally announced the request for funds -- was expected, the amount is far less than many private-sector analysts believe is necessary, particularly as Spanish banks continue to suffer in a deepening recession. Some economists believe the eventual needs could be two or three times that amount.
European officials are hoping the injection of outside capital into the banks, combined with an easing of tough EU-mandated government budget targets announced last month, will take the pressure off Madrid and enable it to avoid any further rescue aid.
Yields on Spain's benchmark 10-year bonds dropped to 5.25 per cent on Monday after Madrid announced the request for bank aid, the lowest borrowing costs in eight months.
Jean-Claude Juncker, the Luxembourg prime minister who chairs the eurogroup of finance ministers, said the funds would be distributed by the middle of next week. "The implementation of the programme is well on track, meeting all required conditionality steps as enshrined in the memorandum of understanding," Mr Juncker said.
Luis de Guindos, Spain's finance minister, said the bailout loans would carry a 12-and-a-half-year maturity with a 10-year grace period and an interest rate in the first year of less than 1 per cent.
"We believe these are advantageous conditions that will help heal, restructure and overcome the problems in the Spanish banking system. It's positive, it's fundamental, it's vital and we won't make the mistakes of the past," Mr de Guindos told reporters before a meeting.
Klaus Regling, head of the eurozone's €500bn rescue fund, said the aid would be given in short-term notes paid into Spain's bank rescue fund, known by its Spanish acronym Frob.
Eurozone ministers put off any decision on a bailout of Cyprus, with Mr Juncker saying a decision would come by December 13 at the earliest. That is also the date ministers are expected to reconvene in Brussels to finalise the overhaul of Greece's second bailout, Mr Juncker said.