Spanish Banks to Get $37 Billion Bailout
Eurozone finance ministers have agreed to inject $37 billion into Spanish banks and ease bailout restriction to aid Europe's fourth-largest economy.
(Image source: fxtimes )
BY FERDOUS AL-FARUQUE
Eurozone finance ministers have agreed to give Spain a $37 billion bailout. Though some of the finance ministers have to obtain approval from their governments, they are expected to return to Brussels by the end of the month with the lifeline to help Spain’s banking sector. Al Jazeera reports...
AJE: “Borrowing costs have reached dangerously high levels for Europe’s fourth biggest economy. The interest rates on 10-year bonds in Spain have risen to above 7 percent which is considered unsustainable in the long term.”
Last month finance ministers already agreed to inject the ailing Eurozone country with $123 billion after review. According to the New York Times, Jean-Claude Juncker (yoonker), president of the Eurogroup of finance ministers, says that is still expected to happen by the end of the year but in the meantime Tuesday’s bailout is meant to be a contingency. The Times says:
NYT: “The European finance ministers [also] agreed to the European Commission’s proposal that Madrid’s deficit target this year be relaxed to 6.3 percent of gross domestic product, from 5.3 percent earlier. Madrid also would get an additional year — until 2014 — to bring the deficit below 3 percent of G.D.P., which is the target for all euro zone countries.”
While Eurozone ministers were deciding on the bailout, RT News reports Spain was considering creating a ‘bad bank’ to buy toxic assets. Though Spain had long resisted the idea, Spanish Finance Minister Cristobal Montoro tells RT News:
RTNews: “A very important first policy is to clean up the banking system. We need to segregate from those balance sheets the assets that are damaged by the crisis.”
In fact a requirement of the bailout is that Madrid segregate the banks’ distressed assets into a ‘bad bank. The Financial Times’ Peter Spiegel says though officially the funds won’t be available until after July 20:
FT: “The aid will at the start be funnelled through the Spanish government’s existing bank bailout fund...But once EU leaders finalise a new eurozone banking supervisor, such loans will go directly to troubled banks, wiping the debt from Spain’s sovereign books."