Arab Today, arab today eu gives spain breathing space with bank rescue
Last Updated : GMT 08:53:10
Arab Today, arab today
Arab Today, arab today

EU gives Spain breathing space with bank rescue

Arab Today, arab today

Arab Today, arab today EU gives Spain breathing space with bank rescue

Brussels - AFP

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 percent 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 percent while Italy, also in the crosshairs, saw its interest rate drop under 6.0 percent. 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. 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 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 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. Schulz, noting that Spain will announce new and ambitious deficit cutting measures shortly, said Tuesday\'s moves reduce \"the risk of Spain falling into a Greek-style economic downward spiral.\" But Jonathan Loynes, chief European economist at Capital Economics, said doubts remain over the future of Spanish banks. \"The measures announced at last night\'s finance ministers\' meeting to support Spain don\'t alter our view that the country will require a full sovereign bailout in the fairly near future,\" he said. In another test for the eurozone on Tuesday, Greece raised 1.625 billion euros at slightly lower rates in a six-month treasury bill sale, its first auction since the new coalition government won a confidence vote in parliament. In a potential challenge to Tuesday\'s progress, the eurozone\'s debt-fighting strategy faced a legal battle in Germany. The German Constitutional Court weighed complaints against the eurozone\'s permanent rescue fund and the European fiscal pact for greater budgetary discipline. This has delayed the planned entry into force of the 500-billion-euro ($615 billion) European Stability Mechanism (ESM), which Spain hopes could directly recapitalise its banks. Meanwhile in Paris, Bank of France governor Christian Noyer referred to decisions taken at the EU summit at the end of June to set up eurozone-wide supervision of banks. Noyer said that the new regulatory mechanism should be based on the eurosystem, the network of national central banks undergirding the European Central Bank. For Noyer, the eurosystem could provide \"the same balance between centralisation and decentralisation\" to a eurozone-wide banking supervisor, a proposal made by eurozone leaders on June 29.

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