In order to prevent the Eurozone’s fourth largest economy from careening even further into the debt crisis, European governments have announced their intention to bolster Spain’s banks with as much as 100 billion Euros of emergency loans. Although no definitive figure was agreed, ailing Spanish lenders were assured that 30 billion Euros would be made available by the end of the month if they were urgently required.
Early this morning, after a nine-hour meeting of euro-region finance ministers in Brussels, it was further announced that Spain would be granted an extra year to reach its deficit reduction targets, with the new deadline being 2014. The deficit goal for this year has been set at 6.3 % of economic output, whilst 2013’s goal will be 4.5 % and 2014’s 2.8%.
These steps have been taken as a preventative measure. The long term hope is that such action now will greatly reduce the likelihood of Spain needing a full state bailout later.
Today a larger gathering of EU finance chiefs will formally relieve the deficit reduction goal that pushed Spain into making recession exacerbating cuts. According to Eurogroup chairman Jean-Claude Juncker a final loan agreement will be signed around the 20th July.
Spain’s Economy Minister Luis de Guindos has stated that the loans will be made at a low interest rate and that the terms of this aid deal are ‘very positive’.
At this mammoth meeting the basic agreements reached during last month’s summit of EU leaders (regarding the establishment of a European banking supervisor and the stabilisation of bond markets through the use of the bloc’s rescue funds) were also expanded on.
However, the issue of reducing/capping the ever increasing Spanish and Italian borrowing costs made no apparent progress.