Brussels, 10/07/2012 (Agence Europe) - After nine hours of talks in Brussels, agreement was reached on Tuesday 10 July 2012 on a draft memorandum on aid for Spanish banks and allowing Spain an extra year, until 2014, to bring its public deficit back below the 3% of Gross Domestic Product (GDP) cut-off point.
The idea is to reach formal agreement in the second half of July following the necessary national parliamentary procedures so that €30 billion can be paid out by the end of the month to cover the urgent needs of the Spanish banking industry, said Jean-Claude Juncker, Eurogroup President. A new Eurogroup meeting will be held to this end on 20 July, along possibly with another special Eurogroup meeting in the first week of September (between the 20 July meeitng and the informal summit in Cyprus).
The head of Eurogroup said that the key component of the terms and conditions is recapitalisation of Spanish banks and increased regulation of the Spanish financial industry, which Eurogroup feels will be hihgly successful in dealing with weaknesses of the Spanish bank system. The eurozone has offered up to €100 billion to bail out Spain's banks, but the final amount will depend on the exact sum needed by each bank.
The aid will be subject to terms and conditions for specific banks and the financial industry as a whole, with tight regulation and limits on directors' pay, explained German Finance Minister Wolfgang Schäuble.
Jean-Claude Juncker said that Spain could have up to fifteen years to pay back the loans, with an average of twelve and a half years, with adjustments for early repayment. This aid for Spain's banks will come from the EFSF (European Financial Stability Facility) until the ESM (European Stability Mechanism) gets up and running later this month.
The aid programme will cover the weaker Spanish banks, explained Thomas Wieser, head of a Eurogroup work group, adding that a programme would be needed on how to deal with extra capital requirements revealed by the batch of bank stress tests currently under way. The assets of banks receiving a public bailout will need to be separated off and isolated so they can be managed by an asset management company. Assets will be transferred from the banks themselves to the asset management companies. The stress tests will have been completed by the end of September 2012, at which point it would be clear exactly what the bank recapitalisation requirements are, explained Wieser. Banks will be pigeon-holed according to whether they need any capital at all, those that need capital and will be requesting state aid and those which need capital but can raise it from the private sector.
The eurozone agreed that because of the country's economic problems, Spain will now have until some point in 2014 (rather than some point in 2013) to cut its public deficit to 3% of GDP. The head of Eurogroup explained that this had been possible due to the Commission's positive assessment of the reforms introduced by Spain and the impact of the deterioration in the Spanish economy on the public purse. Eurogroup encouraged Spain to do what is needed to achieve the public deficit targets in 2014. The year's breathing space for correction of Spain's excess deficit was formalised by the ECOFIN Council on Tuesday 10 July.
Budget Adjustment Plan for 2013-2014
Economic and Monetary Affairs Commissioner Olli Rehn said that in return for the extra year's grace, Madrid will have to submit a structural adjustment programme for 2013 and 2014 by the end of the month. Spain's new target is to cut its public deficit to 6.3% this year, 4.5% in 2013 and 2.8% in 2014, he said. The key actions asked of Spain to ensure the achievement of these new targets are: - implementation of the measures adopted in the budget of this year and in the rebalancing plans in the Autonomous Communities; rapid adoption of additional measures to ensure the achievement of the fiscal target for this year, given the challenges to meet this objective; and the adoption by the end of this month of the announced bi-annual budget plan for 2013-14. This budget plan will have to fully specify the structural measures necessary to achieve the correction of the excessive deficit by 2014.
In terms of the Spanish aid programme, it was also decided that the troika of lenders (the European Commission, ECB and IMF) would send fact-finders to Spain each quarter; the interest charged on the cash for Spanish banks would be in the order of 4%; and the Commission will be laying down stringent capital requirements across-the-board for all Spanish banks of a capital ratio of around 9%. (LC/transl.fl)