Euro Zone finance ministers agreed today to offer Spain $37 billion this month to help its distressed banks as they raced to battle market scepticism over efforts to tackle the debt crisis.
But Asian markets were mostly lower and the euro fell, with analysts saying the deal was far from enough to resolve the Euro Zone’s woes.
After nine hours of talks, Jean-Claude Juncker, the Luxembourg premier who also heads the Eurogroup, said a memorandum of understanding for Spain would be formally signed “in the second half of July,” with $37 billion available by the end of the month.
Spain, under increasing pressure as markets pushed its borrowing costs to above the dangerously high 7 per cent threshold, had called for up to $123 billion in direct aid at a June 28-29 “breakthrough” EU summit.
Aiming to keep the momentum going, ministers also agreed to extend a deadline for Spain to cut its public deficit to the EU’s 3.0 per cent limit by one year to 2014 because of the difficult economic conditions it faces.
At the same time, however, Mr Juncker — who was reappointed Eurogroup head after being in the job since 2005 — stressed that Madrid must implement measures needed to bring its public finances into line with EU norms.
The EU Economic Affairs Commissioner, Mr Olli Rehn, said Spain’s public deficit — the shortfall of revenue to spending — was expected to reach 6.3 per cent of gross domestic product this year, 4.5 per cent in 2013 and 2.8 per cent in 2014.
Spain in May revised its 2011 public deficit to 8.9 per cent, up from 8.51 per cent initially and way above the original 6.0 per cent target.
The Prime Minister, Mr Mariano Rajoy, announced on Saturday that he would take additional steps soon to cut the public deficit and said “Europe must fulfil the accords as swiftly as possible“.
In another test for the Euro zone today, Greece is seeking to raise $1.5 billion in six-month Treasury bills, its first auction since the new coalition Government won a confidence vote in Parliament.
The euro was changing hands at $1.2284 in Tokyo afternoon trade against $1.2312 in New York yesterday.
Mr Juncker, widely seen as one of the founding fathers of the euro, confirmed he would stay on as head of the Eurogroup but would not serve a full two-and-a-half year term, expecting to step down early next year.
In another key appointment, Germany’s Klaus Regling, head of the Euro zone’s temporary EFSF bailout fund, was named to run its permanent successor, the European Stability Mechanism.
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