Euro-area finance ministers gave final approval to a bank bailout for Spain of as much as 100 billion euros ($122 billion).
Today’s decision was made on a conference call, Luxembourg Finance Minister Luc Frieden told reporters. It paves the way for a first payment from Europe’s temporary rescue fund, the European Financial Stability Facility. The EFSF can now raise 30 billion euros, including a 10 billion-euro “longer-term prudential cushion,” to be held in reserve for emergencies, according to a draft agreement. Banks will be able to receive payments once they have submitted approved restructuring plans.
The rescue is a key plank in Spain’s efforts to maintain access to financial markets and rein in debt-crisis contagion. Prime Minister Mariano Rajoy began mapping out Spain’s economic path through the next 18 months today in the face of mounting pressure from protesters and investors, who have pushed bond yields above 7 percent.
“Whether the bailout program for Spain will help to calm the markets and reduce the funding costs of the sovereign is unclear,” wrote Antonio Garcia Pascual, Barclays Capital chief economist for Southern Europe, in a note to clients today. “International investors remain on the sidelines, as well as some of the domestic financial institutions. Key in our view will be the programme execution.”
Spain’s bailout will start through the EFSF, which has 240 billion euros in remaining capacity. The permanent 500-billion euro European Stability Mechanism is on hold until after a German court ruling due in September. It won’t be allowed to work directly with Spanish banks until the euro area establishes a common bank supervisor with an expanded the role for the European Central Bank.
Spain’s 10-year bonds fell for a seventh day, driving the yield to as high as 7.12 percent. The extra yield investors demand to hold the securities instead of German bunds rose to as much as 594 basis points, the most on record.