Brussels, 20/07/2012 (Agence Europe) - On Friday 20 July, eurozone finance ministers unanimously agreed on a financial aid package for Spanish banks, an agreement that will enable the first instalment to be made out, some €30 billion, from the EFSF to cover urgent needs by banks. The cash will be paid into the FROB (Fund for Orderly Bank Refunding), which will allocate the cash to banks. The EFSF will be providing aid until the ESM is up and running, but without being granted senior lender status. Eurogroup issued a press release on Friday stating that the Spanish government will be held fully liable for repayment of the loans.
The total funding is capped at €100 billion, but the exact amount needed will not be known until the bank stress tests have been completed (in September). Independent consultants suggest that some €62bn might be needed. On Thursday 19 July, the European Commission swept aside rumours in the Spanish Press (El Pais) to the effect that the remainder of the cash promised by the Eurogroup could be used to buy up Spanish bonds. Simon O'Connor, a spokesman for EU Economic and Monetary Affairs Commissioner Olli Rehn, said this was simply a mistaken interpretation of a legal document.
Terms and conditions. As announced after the meeting of eurozone finance ministers on 9 July 2012 (see EUROPE 10652), Spain could have up to fifteen years to pay back the loans, with an average of twelve and a half years. The aid comes with strings attached for individual Spanish banks and the country's banking industry as a whole. The main component will be bailing out the financial industry in line with EU state aid rules and strengthening bank supervision rules in Spain. The Eurogroup press release says that toxic assets must be separated off from problem banks and clauses to this effect will be added to the memorandum of understanding due to be formally signed over the next few days.
Commissioner Olli Rehn stressed the importance of Madrid's commitment to cut its public deficit. At the meeting of Eurogroup finance ministers on 9 July, Spain was given a year's breathing space, until 2014, to reduce its deficit to below the 3% GDP cut-off point. Rehn said that Spain must introduce the structural reforms laid down by the Commission in its country-specific macroeconomic recommendations adopted by the Council of Ministers on 10 July. The eurozone warns that progress will be carefully and regularly monitored.
The Eurogroup points out: “The aim of this programme is very clear - to provide Spain with healthy, effectively regulated and rigorously supervised banks, capable of nurturing sustainable economic growth.”
On the day the agreement was reached (Friday), interest rates for rolling over Spain's long-term debt rose above 7%, the level traditionally considered as affordable.
In a press release, International Monetary Fund Director General Christine Lagarde welcomed the Eurogroup's decsion to provide Spain with aid from the European Financial Stability Facility to recapitalise its banks.
Agreement in the nick of time. On Thursday 19 July, the German parliament endorsed the Spanish aid programme by 473 to 97 with 13 abstentions. Finland endorsed the programme on Friday morning, shortly before the eurozone finance ministers' teleconference where formal agreement was reached. Echoing its approach for Greece in October 2011, Finland got Spain to sign an agreement earlier this week granting guarantees for Finland in return for Finnish agreement to the eurozone aid package. The guarantees cover 40% of Finland's share of the eurozone loans, in other words €769.92 million (see EUROPE 10659).
Greece. The Spanish memorandum of understanding was the only subject on the agenda of the Eurogroup teleconference on Friday. Greece will be discussed in September. The troika of lenders (the European Central Bank, the European Commission and the International Monetary Fund) will be sending fact-finders to Athens on 24 July, explained the European Commission, adding that Greece will not have any problems rolling over its debt in August. At the last Eurogroup meeting, Juncker said that technical solutions could be found for any cash-flow problems, explained O'Connor, adding that the fact that no details had been given did not indicate any lack of determination to find solutions. He said decisions on future aid instalments depended on the outcome of the troika's fact-finding mission. The ECB said it will not accept Greek bonds as guarantees from banks until the troika issues its next report and that Greek banks could apply to the Greek National Bank to cover their liquidity needs. (EL/transl.fl)