Malta is expected to allocate €100 million in loan guarantees to help Spain recapitalise its banks, Finance Minister Tonio Fenech told The Times yesterday.

It is in the interest of the eurozone to stop any speculation and contagion effects as early as possible

This follows a deal reached by the eurozone’s finance ministers over the weekend to offer a total of €100 billion in cheap loans to Spanish banks.

Malta’s share should technically not have an impact on its general public debt figures. It is expected to be made available through the EU’s permanent bailout mechanism, known as the European Stability Mechanism (ESM), which will come into force next month and replace the European Financial Stability Facility (ESFS).

However, several member states,including Malta, have not yet ratified the treaty and there are growing doubts on whether this will be possible by the set July deadline.

Until then, the funds for Spain will come out of the current EFSF – a temporary bailout fund made up of loans and guarantees from the 17 eurozone members. Malta’s share of guarantees is €704 million out of the €800 billion temporary mechanism already used to bail out Greece, Ireland and Portugal.

“The decision by the eurozone member states to help Spain solve its banking problems is very important for the stability of the eurozone,” Mr Fenech said.

“It is in the interest of the eurozone to stop any speculation and the contagion effects as early as possible. This is what we did through decisive action,” he said.

Asked whether he was concerned about the fact that if the bailout funds were not channelled through the ESM, the island’s debt would rise by about 1.5 per cent of GDP, Mr Fenech said this should not happen as the mechanism was expected to enter into force shortly.

However, he acknowledged there might be a slight delay as some member states were finding it difficult to meet the deadline for ratification.

“On our part, we have already presented the treaty to Parliament and our target is to ratify the ESM before the summer recess and in time for the July deadline.” The Commission yesterday gave few details about the technicalities of the Spanish deal although it underlined that this was not a bailout for Spain but only a recapitalisation of its financial sector.

Spain’s weakest banks were left with millions of euros in bad loans following the collapse of the property market and the subsequent recession. The situation had the potential of causing a crash of the whole Spanish economy – the fourth largest in the EU – and a spillover to other “weak” economies, particularly Italy.

The Commission said the exact amount of cash to be passed on to the Spanish government would be determined following two separate audits being carried out by independent agencies. It will be only at the end of this process that the interest rate to be paid by Spain will be determined.

Meanwhile, the weekend’s deal had a positive effect on the financial markets at first but the momentum later fizzled out.

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