EU Finance Ministers play up aid for Spain

Eurozone Finance Ministers claimed new progress in fighting the debt crisis yesterday, saying measures agreed to help Spain and its stricken banks put plenty of firepower in place.

We must try to get these states back on their feet...

With Spain under pressure on the financial markets, eurozone finance ministers approved plans overnight to provide €30 billion for its banks this month, with €100 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 three per cent limit by one year to 2014 because of the difficult economic conditions it faces.

Financial markets signalled some approval of the decisions. European stock markets were slightly higher in early trading yesterday after a muted showing in Asia on the news and Spanish long-term borrowing costs eased slightly to just below the red-line seven per cent level.

But the euro was easier at $1.2288 in mid-morning trading, down from $1.2312 in New York late on Monday.

The eurozone bond market had come under acute pressure on Monday when Spanish and Italian bond rates rose sharply and German and French rates fell, 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 the meeting of all 27 European Union finance ministers.

“We must try to get these states 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.

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.”

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.”

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 defensive.

Analysts gave the latest accords some grudging praise yesterday.

“The eurozone is learning from past errors,” said Christian Schulz, senior economist with Berenberg Bank, but “the outcome will probably not be enough to stop the rise in Spanish and Italian” borrowing costs.

Mr Schulz, noting that Spain will announce new and ambitious deficit cutting measures shortly, said yesterday’s moves reduce “the risk of Spain falling into a Greek-style economic down-ward spiral”.

Yosuke Hosokawa, head of FX sales team at Sumitomo Mitsui Trust Bank, said yesterday’s announcements were “details of procedures and unlikely to affect the entire picture of the euro-zone trouble.

“Everybody knows it will take a considerable time to resolve the problem.”