BRUSSELS, July 10: Eurozone finance ministers bought Spain more time to save its sickly economy on Tuesday, offering 30 billion euros to rescue the country’s banks and counter market fears of more debt contagion.
Battling against relentless market pressures, the ministers approved plans early on Tuesday to provide the funds this month, with 100 billion euros ($123 billion) potentially available in all. At the same time, the 17-nation single currency bloc agreed to extend a deadline for Spain to cut its public deficit to the EU’s 3.0 per cent limit by one year to 2014 because of the difficult economic conditions it faces.
Spanish Economy Minister, Luis de Guindos said the “two agreements are very positive,” giving Madrid the time and the money “to thoroughly clear up the banking sector.”
European shares rallied and the euro pulled away from a two-year dollar low by midday on Tuesday as investors cautiously approved the overnight deal. The euro steadied at $1.2313, one day after hitting $1.2251 — the lowest point since July 1, 2010 — on heightened concerns over soaring Spanish borrowing costs.
The return on Spain’s benchmark 10-year bond fell below the red line of 7.0 per cent while Italy, also in the crosshairs, saw its interest rate drop under 6.0 per cent. Italian and Spanish borrowing costs had surged on Monday on scepticism that the Eurogroup meeting of finance ministers would amount to much.
“The markets have to realise that the money is there, more than they realise,” said Luxembourg Finance Minister Luc Frieden as he went into a second day of talks including all 27 European Union finance ministers.
“We must try that these states get back to their feet and I think that one year more or less, if that can help a state, is not a wrong signal,” he added.
Austria’s Maria Fekter, a hardliner on aid for eurozone states needing help, noted that the deal for Spain “contains a lot of conditions, items and formalities Spain has to meet... (Spain) needs time for that.”
But De Guindos expressed a different view, insisting the deal “does not impose macroeconomic conditions” on the Spanish government.
However, Madrid has sought to avoid any deal that would impose the kind of austerity and structural reforms that have been forced onto bailed out Greece, Ireland and Portugal.
A continuous series of meetings and summits have marked the course of the near three-year debt crisis, with the EU leaders repeatedly being outflanked by investors sceptical that they really can put their house in order.
A June 28-29 EU summit was hailed as a “breakthrough” after it promised Spain aid for its banks, the setting up a new bank regulator and made it easier for the new permanent ESM eurozone bailout fund to fund struggling members.
After an initial euphoric welcome, however, market sentiment quickly turned negative, putting Spain and Italy back under pressure and the eurozone on the defensive.
Analysts gave the latest accords some grudging praise on Tuesday. “The eurozone is learning from past errors,” said Christian Schulz, senior economist with Berenberg Bank, adding that “the outcome will probably not be enough to stop the rise in Spanish and Italian” borrowing costs.—AFP