Brussels, 06/07/2012 (Agence Europe) - On Monday 9 July 2012, Eurogroup is expected to reach broad agreement about a financial aid package for Spain to help recapitalise Spanish banks struggling under the burden of toxic mortgage assets. Formal decisions about aid for Cyprus and adjustments to the second Greek bailout are not expected until the end of August.
Spain. The aim of the eurozone finance ministers' meeting is to reach broad agreement on the aid programme for Spain so that member states can start their own procedures for the future memorandum in order for it to be formally adopted in the future, explained a European source on Friday 6 July. Eurogroup says it will provide up to €100 bn, but the exact amount will not be decided on Monday as it depends on stress tests currently under way on the banks in question. Formal approval of the Spanish memorandum is expected later this month (possibly on Friday 20 July), possibly via video conference.
Initially financed by the EFSF until the ESM comes on stream, the Spanish programme will include measures to restructure banking and changes in the Spanish financial regulatory system. Until the eurozone summit's recent decision (to allow eurozone bailout funds to recapitalise banks directily as soon as a bank supervision system has been set up with the ECB) is applied, Spain will be itself be held responsible for paying back the aid for its banks. A European source says the ESM will only be allowed to invest in banks if the State guarantees the loan and the risk will remain the member state's responsibility. Finland is repeating what it did with Greece and is negotiating with Spain to get guarantees for its loans to Spanish banks.
Spain alone will be responsible for deciding on new macroeconomic and budget measures to help it meet its budget targets of reducing its excess deficit from 8.9% to 5.3% of GDP in 2012 and then 3% in 2013, but on Monday, the Commission's suggestion that Spain be given longer to reach the 3% target will not be discussed because no formal proposals have yet been published (see EUROPE 10623).
Cyprus. Until the troika of lenders (European Commission, ECB and IMF) whose fact-finders are now in Nicosia has examined Cypriot banks' lending portfolios, it will not be possible to finalise the Cypriot memorandum. Cyprus is currently negotiating financial aid from both the EU and Russia (see separate article).
Greece. At his first Eurogroup meeting, the new Greek finance minister, Yiannis Stournaras, will explain how the Greek government is planning to get the second structural adjustment programme on track (some €11 billion of cuts need to be found and the privatisation programme got under way, for example). A European source says that the important thing is how and when the government will start implementing the memorandum and it is only after it has demonstrated the political will to apply the programme that it will try to negotiate how to achieve the new targets, targets that it says are non-negotiable.
On Tuesday, the ECOFIN Council will discuss the talks on the two regulations adjusting the Stability and Growth Pact (the “2-pack”) and increased bank capital requirements ('CRD IV'). (MB/transl.fl)