EU gives Spain more time on deficit, sets bank aid

Tue Jul 10, 2012 1:43am EDT
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By Robin Emmott and Francesca Landini

BRUSSELS (Reuters) - Euro zone ministers agreed early on Tuesday to grant Spain an extra year until 2014 to reach its deficit reduction targets in exchange for further budget savings and set the parameters of an aid package for Madrid's ailing banks.

The decisions were aimed at preventing the currency area's fourth largest economy, mired in a worsening recession, from needing a full state bailout which would stretch the limits of Europe's rescue fund and plunge it deeper into a debt crisis.

"The Eurogroup supports the recently adopted Commission recommendation to extend the deadline for the correction of the excessive deficit in Spain by one year to 2014," ministers said in a statement.

No final figure was agreed for aid to ailing Spanish lenders, weighed down by bad debts due to a housing crash and recession, but the EU has set a maximum of 100 billion euros ($123 billion) and some 30 billion euros would be available by the end of July if there was an urgent need.

A final loan agreement will be signed on or around July 20, Eurogroup chairman Jean-Claude Juncker told a news conference.

In one key decision closely watched by investors, ministers agreed that once a single European banking supervisor is set up next year, Spanish banks could be directly recapitalized from the euro zone rescue fund without requiring a state guarantee.

That fulfils an EU summit mandate to try to break a so-called "doom loop" of mutual dependency between weak banks and over indebted sovereigns, but represented a climb-down for hard-line north European creditor countries.

In a nine-hour marathon meeting ministers of the 17-nation euro zone also settled a series of long delayed appointments.   Continued...

Moroccan national Hayat Loukrichi kisses her mother Fatima before learning that the family's eviction has been suspended in Madrid July 9, 2012. Their eviction, which has been caused by their failure to pay the rent to their landlord, has been postponed to October 26, 2012. Spain's bailed-out Bankia is seeking the foreclosure of the house after the landlord failed to pay the mortgage. REUTERS/Juan Medina