Eurozone approves Spanish bank aid package

Eurozone finance ministers Friday finalised an aid package for Spanish banks of up to 100 billion euros ($122 billion), saying it would help "safeguard financial stability in the euro area as a whole." "Ministers unanimously agreed today to grant financial assistance for the recapitalisation of financial institutions in response to the Spanish authorities' request on 25 June 2012," the European Union said in a statement. Despite the long-anticipated approval, European stocks and the euro fell sharply, led down by the Madrid and Milan markets as Spanish borrowing costs jumped back above the 7.0-percent danger level after massive protests overnight against government plans to tighten budget discipline. After a telephone conference lasting less than two hours, ministers of the 17-nation zone agreed the money will pass through the Spain's bank resolution fund FROB, after an audit expected to be finalised in September. The Spanish government will retain full responsibility for the financial assistance, the statement added. The Eurogroup ministers stressed that the rescue was conditional on reforms in the banking sector outlined in a Memorandum of Understanding to be signed in the coming days. They also said Madrid's commitment to reduce its public deficit and continue structural reforms of the economy would be "closely and regularly reviewed in parallel with the financial sector conditionality." Initial funds will be provided by the eurozone's temporary bailout fund, the European Financial Stability Facility (EFSF), which is to be replaced by the permanent European Stability Mechanism (ESM) later this year. The EFSF will set aside 30 billion euros at the start "which can be used in case of urgent unexpected financing needs," the statement said. Loans used for bank recapitalisation will have an average maturity of up to 12.5 years, with any individual disbursement having a maximum maturity of up to 15 years, it added. Several important European parliaments have approved the aid, including Germany, the biggest donor to the rescue funds, and Finland, which gave its stamp of approval on Friday following a heated debate. One of a handful of eurozone states to retain a top credit rating, Finland has struck a separate deal with Spain on securing collateral in exchange for Helsinki's contribution to the rescue package. Under the terms of a Memorandum of Understanding, eurozone creditors have obtained strict conditions in return for the funds, including closer scrutiny of Spanish banks by the European Commission. That has not gone down well with Spanish officials, who have worked hard to prevent the situation from infringing on national sovereignty or worsen the state of Spain's own finances. On Friday, Spanish 10-year borrowing costs were firmly back in the danger zone at more than 7.0 percent, a level at which other eurozone countries have had to ask for bailouts from the EU and International Monetary Fund. Opposition in Spain has grown in response to government plans to save 65 billion euros as part of a programme to cut the country's public deficit. Spanish police fired rubber bullets and charged protestors in central Madrid early Friday at the end of a huge demonstration against the government's crisis measures.