Eurozone finance ministers are expected to approve an agreement on the proposed financial assistance to Spain to recapitalize its troubled banks, at a meeting on Friday.
The group will hold a conference call on Friday at Brussels to finalize the details of a EUR 100 billion bailout deal for Spanish banks struck last month.
"The only item on the agenda is the Memorandum Of Understanding for financial assistance to the Spanish banking sector," Jean-Claude Juncker, Luxembourg Prime Minister and President of the Eurogroup, said in a statement on July 17.
The overall bailout package, which is likely to go up to EUR 100 billion, will be available to cleanup struggled banks alone. Spain cannot use these funds for any other purposes.
Once the MoU is adopted, it will allow the first disbursement of EUR 30 billion by the end of this month, Eurogroup said in a statement on July 9. The assistance will be provided via the European Financial Stability Facility (EFSF) until the European Stability Mechanism (ESM) becomes available and takes over this task, probably in September.
The July 9 meeting in Brussels reached a political understanding on the program designed to help Spain recapitalise and restructure its financial institutions.
At this meeting, the finance ministers endorsed the European Commission's proposal to extend the deadline for the correction of the excessive deficit in Spain by one year to 2014.
Meanwhile on Thursday, the Bundestag, the lower house of the German Parliament approved the EUR 100 billion Spanish bank bailout with 473 voting against 97.
However, the exact amount needed to shore up the banking sector has still not been finalized. An independent audit in June showed the banks may needed up to EUR 62 billion in total.
The Spanish benchmark 10-year bond yield jumped above 7 percent following an auction of the country's bonds yesterday. The auction of the 2-, 5- and 7-year bonds revealed rising yields and poor demand for the embattled country's debt, suggesting that the respite provided by the government's latest round of austerity measures is short-lived.
Prime Minister Mariano Rajoy unveiled a EUR 65 billion austerity package on July 11 that requires further tax hikes and spending cuts in an economy where employment conditions have deteriorated and unemployment remains the highest in Europe.
The Bank of Spain has said that the recession may have worsened in the second quarter. Gross domestic product shrunk 0.3 percent in the first three months of the year.
The International Monetary Fund has slashed Spain's economic outlook for next year and now sees a 0.6 percent contraction versus the 0.1 percent growth expected in April. The economy is forecast to contract 1.5 percent this year compared to the 1.9 percent contraction expected earlier.
by RTT Staff Writer
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