Eurozone ministers agreed early this morning (10 July) 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 group is set to meet again before the end of the month to rubber stamp and approve the first €30 billion of Spain’s €100 billion bank bailout plan from the rescue fund.
Ministers also approved a grant to Spain of an extra year to meet its 3% deficit target, giving the stricken Iberian state until the end of 2014 to meet the target.
In a meeting which focused heavily on key appointments to European institutions, ministers discussed a memorandum of understanding that will govern the deal with Spain.
ESM issue is put to bed
“We are aiming at reaching a formal agreement in the second half of July, taking into account national parliamentary procedures, they are in for a first disbursement of €30 billion by the end of the month,” eurogroup chairman Jean Claude Juncker told reporters afterwards.
Ministers confirmed after the meeting that – subject to the condition that a European banking supervisor is in place – the European Stability Mechanism will eventually have the capacity to intervene directly in debt-ridden Spanish banks.
The issue caused uncertainty in the wake of last month’s (29 June) summit of heads of state and government in Brussels, following which reports suggested that Finland and the Netherlands were dissatisfied with the idea.
“It is important to tell the finance markets that when we, one day, have this European bank supervisor, (we) will probably introduce the possibility of direct access so that this is no longer calculated with the country debt,” German finance minister Wolfgang Sch?uble said after this morning’s meeting broke up.
Baptism of fire for Cyprus
Today (10 July), EU finance ministers from all 27 member states meet to discuss an agenda laden with issues likely to stoke animated debate.
The so-called “Two-pack”, including measures designed to rein in member states with struggling financial sectors, remains the subject of a bitter political discussion between the Council and the Parliament, which is seeking to make pan-European controls stronger.
Meanwhile the capital requirements directive – also on the agenda – is another area where Parliament is adopting a stricter tone, likely to irritate the UK.
A tough tour de table of ministers will see each give their views on draft recommendations for their economies prepared under the European Semester, where a number of member states are unhappy with what they have seen.
The least controversial item is likely to be the presentation by Cyprus its work programme for its six-month stint in charge of the council, but the meeting is likely to give its presidency a baptism of fire.